Investment in Latvia

Latvia - Investment

GDP growth records best result since Q2 2021 in Q1 2022

A second estimate revealed that GDP growth improved to 6.7% year on year in the first quarter, from 3.1% in the fourth quarter of last year. Q1's reading marked the best reading since Q2 2021.

The upturn reflected improvements in private consumption, fixed investment and exports. Household spending growth improved to 15.1% year on year in the first quarter, which marked the best reading since Q2 2021 (Q4 2021: +6.5% yoy). Fixed investment rebounded, growing 1.9% in Q1, contrasting the 2.0% decrease logged in the previous quarter. That said, public consumption growth moderated to the slowest pace since Q4 2021, expanding 0.3% (Q4 2021: +3.4% yoy).

Exports of goods and services growth accelerated to 8.6% year on year in the first quarter, which marked the best reading since Q2 2021 (Q4 2021: +5.0% yoy). In addition, imports of goods and services rose to 15.6% in Q1 (Q4 2021: +9.8% yoy), and similarly logged the highest figure since Q2 2021. As such, the external sector contributed 0.5 percentage points to the overall reading in Q1, mirroring the previous quarter’s contribution.

On a seasonally-adjusted quarter-on-quarter basis, economic activity rebounded, expanding 3.6% in Q1 and contrasting the previous period's 0.2% fall. Q1's reading marked the best result since Q3 2020.

Turning to the second quarter, GDP growth is expected to have eased markedly. International sanctions on Russia and Belarus—key trading partners for Latvia—should take a toll on exports and on businesses that rely on these markets. Moreover, the repercussions from the war in Ukraine are set to dampen growth further through higher price pressures, elevated commodity prices and downbeat business sentiment.

FocusEconomics panelists project GDP to grow 2.2% in 2022, which is down 0.3 percentage points from last month’s forecast, and 2.8% in 2023.