Latvia: GDP shrinks for the first time since 2010 in Q1 2020
The economy shrank 1.5% year-on-year in the first quarter, according to detailed national accounts data released by Latvia’s Statistical Institute on 29 May. The result contrasted the previous quarter’s 1.0% expansion and marked the first contraction in GDP since Q4 2010. Moreover, the economy contracted 2.9% quarter-on-quarter in seasonally-adjusted terms (Q4 2019: +0.1% qoq), marking the worst result since Q3 2009.
The first-quarter downturn was largely driven by the constraining effects of severe lockdown measures implemented to curb the Covid-19 pandemic. Consumer demand was especially hard hit, with private consumption contracting at the sharpest rate in over 10 years (Q1 2020: -4.5% yoy, Q4 2019: +1.7% yoy). On a more positive note, fixed investment rebounded at the outset of the year (Q1 2020: +5.7% yoy, Q4 2019: -3.2% yoy) and government consumption picked up some pace in same period (Q1 2020: +3.2% yoy, Q4 2019: +2.4% yoy), thus softening the overall downturn somewhat.
In the external arena, dynamics were much healthier. Exports of goods and services accelerated in the first quarter (Q1 2020: +3.0% yoy, Q4 2019: +1.1% yoy), thanks to a robust increase in the shipments of goods which more than offset plunging services exports. In a similar fashion, imports of goods and services picked up some traction (Q1 2020: +3.5% yoy, Q4 2019: +0.5% yoy), reflecting rising shipments of goods which more than compensated for shrinking services imports.
The pandemic will deal a heavy blow to the economy this year, with the sharpest contraction seen in Q2. Despite the expected recovery in H2, both domestic demand and the external sector are seen contracting markedly this year. Strict lockdown measures and the fear of a second wave of the outbreak are set to dampen consumer demand and investment activity, while the external sector will likely be hammered by dwindling tourist arrivals and eviscerated foreign demand for merchandise exports.