Latvia: Still going strong

The Q2 flash GDP figure came in at 5.1% y/y, slightly above expectations and confirming that the Latvian economy is still growing at a good pace, although slowing from 6.8% y/y in Q1. Growth momentum also remained good, with the economy expanding by 1.0% q/q (sa). Overall growth now averages approximately 6% y/y for the first half of the year. Thus we expect to raise our June GDP forecast of 3.3% y/y towards 4.0%, even though we see growth slowing in the second half of the year.

According to the statistics office the economy was supported by growth in industry and trade as well as the construction sector. Thus the recovery still seems to be fairly broad-based, with both the external and internal sectors growing. Although the growth rate has slowed, both industrial production and exports have continued to expand this year, with the industrial production index recently approaching the peak in 2008. Also retail sales growth has remained fairly robust so far this year. However, we see the pace of GDP growth still slowing this year as the downturn in Europe weighs, and the risks to the growth outlook remain high as the situation in the euro area remains uncertain. A prolonged downturn throughout Europe would have an adverse effect on the Latvian economy as well.

The details behind the GDP will be released in early September.

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