Latvia: Weaker domestic demand puts a drag on growth in Q4
February 29, 2016
Latvia’s economic growth in Q4 was weaker than previously reported due to subdued domestic demand. According to a more complete data released by the national statistical office on 29 February, GDP increased 2.7% in Q4 over the same quarter of the previous year. The print was revised down from the 3.0% increase released in a flash estimate and marked a deceleration over the 3.5% expansion tallied in Q3. In the full year 2015, the economy expanded 2.7%, which was faster than the 2.4% growth in 2014.
Domestic demand showed poor performance and was the main driver behind Q4’s deceleration. Total consumption expanded 2.3% annually in Q4 (Q3: +4.9% year-on-year), dragged down by a notable slowdown in private consumption (Q3: +5.2% yoy; Q4: +2.4% yoy) and a softer increase in government spending (Q3: +3.7% yoy; Q4: +2.0% yoy). In addition, growth in fixed investment slowed to 1.1% in Q4 (Q3: +6.0% yoy).
On the external front, both exports and imports of goods and services declined at rates last observed in the height of the financial crisis in 2009. Exports fell 2.5% (Q3: +1.4% yoy), while imports contracted 2.0% (Q3: +5.3% yoy). As a result, the net contribution from the external sector to overall growth was minus 0.3 percentage points in Q4, which was better than the minus 2.4 percentage points tallied in Q3.
A quarter-on-quarter comparison showed that GDP decreased a seasonally-adjusted 0.3% in Q4, which contrasted the 0.9% rise in Q3.
Author: Ricardo Aceves, Senior Economist