Latvia: Economy falters in Q1
A first release showed that economic activity contracted by 0.2% year on year in Q1, following the 0.5% dip recorded in Q4 and marking the best reading since Q1 2023. On a seasonally adjusted quarter-on-quarter basis, economic growth improved to 0.8% in Q1, following the previous period’s 0.4% growth.
Absent a breakdown of economic activity, the softer decline likely stemmed from smaller drops in industrial activity and goods exports. Softening consumer pessimism and stronger confidence in the services sector, coupled with slowing inflation in January–March, likely also supported private spending. That said, still-tight monetary conditions in the Eurozone should have kept a lid on domestic and external demand, keeping the economy in contraction.
A full breakdown will be released on 31 May.
Analysts at the EIU commented on the outlook:
“We expect growth to rebound modestly to 1.8% in 2024, strengthening to 2.7% in 2025. Year-on-year inflation has slowed significantly in 2023 and 2024, which will strengthen household purchasing power. […] A continued tight labour market will ensure a recovery in domestic demand, with key energy support measures set to remain in place. Economic sentiment will continue to improve, with easing global supply chains and wider availability of semiconductor chips supporting the industrial sector. Steady disbursement of EU funds will support government spending and investment projects, while the easing of ECB interest rates from the second half of 2024 will further support loan demand and credit expansion.”