Latvia: GDP growth grows at softest pace in over a year in Q2
GDP growth moderated to 3.0% year on year in the second quarter, from 6.7% in the first quarter. Q2’s reading marked the lowest reading since Q1 2021. That said, it came well above the 2.6% year on year figure logged in the flash estimate.
The reading was mainly driven by muted demand amid surging price pressures: Private consumption increased 7.9% in the second quarter, which was below the first quarter’s 14.7% expansion. In contrast, government spending improved to a 2.7% increase in Q2 (Q1: +0.3% yoy). Meanwhile, fixed investment growth accelerated to 2.7% in Q2, from the 1.9% expansion in the prior quarter.
Exports of goods and services increased 9.1% on an annual basis in the second quarter, which was below the first quarter’s 9.4% expansion. In addition, imports of goods and services growth waned to 11.2% in Q2 (Q1: +15.4% yoy).
On a seasonally-adjusted quarter-on-quarter basis, GDP declined 1.0% in Q2, contrasting the previous period’s 3.4% expansion. Q2’s reading marked the sharpest decrease since Q2 2020.
Looking ahead, GDP growth is expected to moderate further in Q3. Sky-high inflation, elevated geopolitical tensions and the repercussions from the war in Ukraine are expected to keep a lid on the economy. Commenting on the medium-term outlook, Analysts at EIU remarked: “Although elevated government consumption will counterbalance some of these developments, we nonetheless expect economic growth to weaken to 2.8% in 2022 and 1.4% in 2023, as economic uncertainty gradually puts a damper on the economy. Risks remain strongly tilted to the downside”.