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Latvia GDP Q4 2020

Latvia: Contraction in GDP softens again in Q4

The economy shrank 1.5% year-on-year in the fourth quarter of 2020, according to detailed national accounts data released on 26 February. The reading was revised down slightly from the 1.4% downturn reported in the preliminary release but still showed an improvement from the 2.8% fall logged in Q3. That said, Q4’s result marked the fourth consecutive quarter of declining output. For the year as a whole, GDP fell 3.6%, marking the first contraction in a decade (2019: +2.0%).

Q4’s softer downturn primarily reflected improving dynamics in the external sector. Exports of goods and services rose 3.1% year-on-year in Q4, rebounding from the 3.6% decline logged in the previous quarter, as external demand firmed. Likewise, imports grew 1.7% annually, bouncing back from Q3’s 2.6% drop.

On the domestic front, private consumption plunged 8.5% on an annual basis—more sharply than the 7.3% decline recorded in Q3—in large part due to the tightening of Covid-19-related restrictions amid rapidly rising virus infections. Meanwhile, fixed investment bounced back to growth in Q4, expanding 2.6% year-on-year (Q3: -0.9% yoy). Lastly, public spending growth accelerated to 3.0% in Q4 from 2.5% in Q3.

On a seasonally-adjusted quarter-on-quarter basis, GDP rose 1.1% in Q4, losing pace from the previous quarter’s 6.9% surge.

Looking at this year, the economy is poised to recover from the pandemic’s blow as domestic and foreign demand revive. However, still-elevated Covid-19 cases and potential shortcomings in the vaccine distribution, coupled with concerns regarding the strength of the Eurozone recovery, dampen the outlook.

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