Latvia: Economic growth jumps in Q3 on buoyant domestic demand
November 30, 2017
According to revised data released by the Statistical Institute on 30 November, GDP increased 5.8% over the same quarter last year in Q3. The result confirmed the preliminary estimate. Growth came in above Q2’s 4.0% and represented the fastest rate of expansion since Q1 2012; it was once again boosted by a surge in fixed investment that was partially offset by a sharp deterioration in the external sector. In seasonally-adjusted quarter-on-quarter terms, the economy grew 1.5% in Q3, a slight acceleration from Q2’s 1.4% growth.
Fixed investment jumped 20.0% in Q3 in annual terms. While still an impressive expansion, it was a slight moderation from Q2’s 22.1% growth. Fixed investment has remained in expansionary territory so far this year, leaving behind a dire 2016 which saw year-on-year contractions every quarter. Q3’s increase benefited from strong inflows of EU structural and investment funds and solid infrastructure spending. Moreover, fixed investment is also being supported by the growing integration of local companies and multinationals operating within the country into Eurozone supply chains. Meanwhile, private consumption, the largest component of the Latvian economy, rose 5.8% in Q3 (Q2: +4.0% year-on-year), supported by tightening labor market conditions and rapidly rising wages. Lastly, government consumption grew a robust 4.8% in annual terms in Q3, broadly in line with Q2’s 5.0% increase.
On the external front, exports of goods and services increased 2.4% annually in Q3, a slowdown compared to Q2’s growth of 3.0%. By contrast, imports of goods and services grew at the fastest pace in almost six years, rising 14.1% (Q2: +7.8% yoy) on the jump in investment activity. The external sector detracted from Q3’s annual growth performance by 7.5 percentage points, a notable deterioration compared to the minus 3.1 percentage-point contribution it made in Q2.