Latvia: GDP records sharpest contraction since Q1 2021 in the third quarter
GDP contracted 0.6% year on year in the third quarter, contrasting the 2.9% expansion seen in the second quarter. Q3’s reading marked the worst result since Q1 2021 and came on the back of a broad-based deceleration in domestic activity and a high base of comparison.
Domestically, private spending growth fell to 5.5% in Q3, marking the weakest expansion in a year (Q2: +7.2% yoy). Over the quarter, households spent less on transport and energy amid elevated costs. In addition, public spending growth waned to 1.6% in Q3 (Q2: +2.7% yoy). Fixed investment growth fell to 0.4% in the quarter, owing to a drop in investment in dwellings. This marked the lowest result since Q4 2021 (Q2: +0.9% yoy).
On the external front, exports of goods and services growth picked up pace to 12.3% year on year in the third quarter, with faster services export growth spearheading the acceleration. Conversely, imports of goods and services growth moderated to 8.8% in Q3 (Q2: +10.8% yoy), marking the worst reading since Q1 2021.
Meanwhile, underlying momentum faltered through September: On a seasonally and calendar-adjusted quarter-on-quarter basis, economic activity declined 1.7% in Q3, compared to the previous period’s flat reading. Q3’s reading marked the largest decrease since Q2 2020.
Looking ahead, the country will face a winter energy crunch that will hit industrial output and consumer spending alike. With the third-highest inflation rate in the Eurozone through November and higher financing costs, price pressures will continue to weigh on private consumption. Meanwhile, the prolongation of the Russia-Ukraine war looms over growth prospects via the loss of trade with Russia and Belarus.