Latvia: Economy rebounds in Q4
A second release showed that economic activity bounced back and grew by 0.1% year on year in Q4, contrasting the 0.6% contraction recorded in Q3 and the 0.5% decline reported in the Q4 preliminary estimate. On a seasonally adjusted quarter-on-quarter basis, economic growth improved to 0.8% in Q4, following the previous period’s 0.1% growth.
The annual upturn reflected stronger fixed investment growth and softer declines in private spending and exports compared to the previous period.
Looking at the details of the release, fixed investment growth improved to 12.2% in Q4, from the 3.7% increase in the prior quarter. In addition, private consumption contracted at a softer pace of 0.4% year on year in the fourth quarter, which marked the best reading since Q4 2022 (Q3: -1.7% yoy). Less positively, government consumption growth waned to 7.5% in Q4 (Q3: +7.7% yoy).
On the external front, exports of goods and services fell 5.9% on an annual basis in the fourth quarter, which was above the third quarter’s 12.2% contraction. In addition, imports of goods and services declined at a more moderate pace of 4.5% in Q4 (Q3: -8.3% yoy).
Analysts at the EIU commented on the outlook:
“A continued tight labour market will ensure a recovery in domestic demand, with key energy support measures set to remain in place. Economic sentiment will continue to improve, with easing global supply chains and wider availability of semiconductor chips supporting the industrial sector. A wider rebound in external demand from Europe in the latter quarters of 2024 will boost the Latvian economy. Steady disbursement of EU funds will support government spending and investment projects, while the easing of ECB interest rates from the second half of 2024 will further support loan demand and credit expansion.”