Latvia GDP Q1 2020

Latvia

Latvia: GDP contracts for the first time since 2010 in Q1 2020

April 30, 2020

The economy shrank 1.4% year-on-year in the first quarter of this year, according to preliminary national accounts data released by Latvia’s Statistical Institute on 30 April (Q4 2019: +1.0% year-on-year). The result marked the first contraction in GDP since Q4 2010 and came against the backdrop of severe lockdown measures implemented to curb the Covid-19 pandemic. As such, the overall contraction chiefly reflected plummeting activity in the services sector which has been the hardest hit by the pandemic. Moreover, the fallout from the virus likely took a heavy toll on exports and manufacturing production.

Meanwhile, in seasonally- and working-day adjusted quarter-on-quarter terms, the economy contracted 2.9% in Q1, swinging from a modest 0.1% expansion in Q4 2019. The result marked the sharpest contraction in economic activity since Q3 2009.

The pandemic is seen depressing economic activity this year, with the sharpest contraction likely concentrated in Q2 2020. Investment activity is expected to dive as the business environment worsens and, coupled with plunging consumer spending due to rising unemployment and faltering wage growth, is set to spearhead the downturn in domestic demand. Externally, compromised trade links, devastated global demand and contracting activity in the EU will likely deal a severe blow to exports. A pick up in government spending should cushion the downturn somewhat, however.

FocusEconomics panelists see GDP contracting 3.4% in 2020, which is down 6.0 percentage points from last month’s forecast. In 2021, the economy is expected to rebound and grow 4.5%.


Author:, Economist

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