Latvia: Growth plummets to near three-year low in Q2
GDP increased 2.0% on annual basis in the second quarter, according to a second estimate released on 30 August. This was a notch below the preliminary estimate of a 2.1% year-on-year increase, was considerably below Q1’s 3.0% expansion and marked the slowest expansion since Q3 2016. However, in seasonally- and working day-adjusted quarter-on-quarter terms, growth rebounded to 0.7% in Q2, from a 0.1% contraction logged in Q1.
A faltering external sector and weaker investment activity chiefly led the deceleration in the second quarter. Fixed investment growth nearly halved (Q2: +4.3% year-on-year; Q1: +8.0% yoy), beset by weaker inflows of EU funds, thus denting overall domestic demand. On a more positive note, household spending accelerated (Q2: +3.5% yoy; Q1: +2.8% yoy), supported by a tighter labor market, while government spending growth largely held up (Q2: +2.3% yoy; Q1: +2.4% yoy).
Meanwhile, the external sector weakened in the quarter as imports surged and exports deteriorated. Imports jumped 7.0% year-on-year in the second quarter, accelerating considerably from the first quarter’s 2.2% increase. Meanwhile, exports decelerated markedly (Q2: +1.9% yoy; Q1: +4.8% yoy) amid stagnant merchandise shipments.