Latvia: Economy slips into recession as GDP shrinks at sharpest rate in over a decade in Q2
July 31, 2020
The economy fell into recession and shrank 9.8% year-on-year in the second quarter, according to preliminary national accounts data released by Latvia’s Statistical Institute on 31 July. The result represented a significant deterioration from the first quarter’s 1.5% dip and marked the largest contraction in GDP since Q1 2010. Moreover, the economy contracted 7.5% quarter-on-quarter in seasonally-adjusted terms (Q1 2020: -2.9% qoq), marking the worst result on record.
The downturn was chiefly driven by an unprecedent contraction in the services sector which was battered by lockdown restrictions and social distancing measures put in place to contain the spread of the coronavirus pandemic. In a similar fashion, activity in the producing sectors declined, albeit less significantly, amid operational restrictions due to the health crisis.
Going forward, the pandemic will deal a heavy blow to the economy this year. Despite an expected recovery in H2, domestic demand is seen contracting sharply this year amid sliding fixed investment and constrained household spending. Moreover, the ailing external sector will also be hard hit due to a drop in tourist arrivals and hampered intra-EU trade. Higher public spending and increased EU funding should soften the downturn somewhat, however.
Author: Almanas Stanapedis, Economist