Latvia: Revised GDP confirms strong growth in the second quarter
Latvia’s economy fired on all cylinders in the second quarter, according to the second estimate released by the Statistical Institute on 31 August. GDP soared 5.3% in annual terms in Q2 (previously reported: +5.1% year-on-year), accelerating markedly from the first quarter’s 4.0% expansion. The uptick was generally broad-based with solid exports growth and booming domestic demand propping up economic activity in Q2.
On the domestic front, investment activity was at the forefront of growth in Q2. Fixed investment surged 12.5% year-on-year (Q1: +19.1% yoy), led by the booming construction sector. Private consumption growth remained upbeat in Q2, helped by a tighter labor market as unemployment dropped to a near 10-year low in the quarter, and remained broadly stable from the first quarter (Q2: +4.0% yoy; Q1: +4.1% yoy). Meanwhile, government spending growth eased from 4.7% yoy in Q1 to 3.7% yoy in Q2.
On the external front, Q2 marked the strongest quarter for exports in over five years: Exports rose 7.5% yoy in the quarter, markedly above the 2.3% increase observed in Q1. Meanwhile, imports growth moderated to 4.8% in annual terms in Q2, below Q1’s 7.1% and the lowest reading since Q3 2016. As a result, the external sector contributed 1.4 percentage points to the second quarter’s headline reading, a notable improvement from the minus 3.0 percentage-point subtraction in the first quarter.
Growth in the second half of the year is not expected to encounter any significant headwinds. Buoyant private consumption, fueled by an improving labor market, and a solid increase in fixed investment, amid an ongoing inflow EU structural funds, should set up the economy for smooth sailing in the reminder of this year and in 2019.