Investment in Latvia

Latvia - Investment

Contraction in GDP softens in Q3 as Covid-19 restrictions ease

The economy shrank 2.6% year-on-year in the third quarter, according to detailed national accounts data released on 30 November. The reading was revised up from the 3.1% contraction reported in the preliminary release and was much smaller than the 8.9% plunge logged in Q2, which had marked the steepest downturn in over a decade. Q3’s result marked the third consecutive quarter of declining output, however.

The milder downturn reflected the gradual return of activity amid the lifting of coronavirus containment measures. Private consumption fell 7.3% on an annual basis in Q3, moderating from the 20.8% collapse recorded in Q2. Similarly, fixed investment slipped 0.8% year-on-year, after tumbling 4.9% in the prior quarter. Lastly, public spending growth accelerated to 2.5% in Q3 from 1.7% in Q2.

On the external front, exports of goods and services declined 3.7%, a much milder drop than Q2’s 13.1% slump, as external demand firmed. Likewise, imports slid 2.6% annually, softening from the 15.8% crash in Q2—reflecting the gradual strengthening of domestic demand.

On a seasonally-adjusted quarter-on-quarter basis, GDP surged 7.1%, rebounding strongly from the previous quarter’s 7.1% drop.

After this year’s pandemic-induced contraction, economic output is poised to rebound in 2021 as domestic and foreign demand strengthen. Nevertheless, the outlook remains dampened by the second wave of Covid-19 cases seen recently at home and in the EU, as well as uncertainty regarding the strength of the Eurozone recovery.

FocusEconomics panelists see GDP growth of 4.1% in 2021, which is down 0.5 percentage points from last month’s estimate. In 2022, the economy is seen expanding 3.9%.