Latvian economy vibrant, but still hounded by inflation

  • 2005-06-15
  • Staff and wire reports
RIGA - Latvia's GDP expanded 7.4 percent during the first quarter of 2005 despite a drop in manufacturing, while annualized inflation continued to charge ahead at 6.3 percent, the national statistics office reported last week.

First quarter economic growth was attributed to stellar performance in trade 's up 15.7 percent year-on-year and comprising 21.1 percent of GDP 's transportation and storage (up 11.1 percent), construction (up 16.2 percent) and commercial services (up 12.3 percent).

Though impressive, economic activity over the three months was actually slower than in the same period last year, when GDP swelled 8.7 percent. Analysts had warned that a brake on growth would come from the industrial sector, and indeed, the statistics office announced that there was a 0.1 percent reduction in manufacturing, caused mainly by a 6.9 percent decline in the wood-processing sector.

Commenting industrial output, Liene Kule, a senior analyst at Hansabanka, told the Baltic News Service, "Those results were even worse than we expected."

Andris Vilks, an analyst at SEB, said the manufacturing sector had been expected to yield better results. "In fact, the weak performance in that sector pulled down the overall GDP. The GDP growth would have been a couple of percentage points higher if there was not decline in the manufacturing," he said.

He said that despite the fall in industrial output, first-quarter growth should be regarded as positive, adding that SEB was not changing its annual GDP growth forecast 's 7.5 percent for 2005 's for the time being.

Meanwhile, the consumer price index grew 0.7 percent in May, signifying an annual rate of 6.3 percent. Price growth was affected by the continuing surge in food prices, which rose 2.1 percent over the month. Statistics bureau officials said the new vegetable crop on the market has pushed up food prices overall. Potato prices jumped 12.6 percent, dairy products 3.9 percent, fruit 3 percent, bread 1.7 percent and sugar 1.1 percent.

Still, monthly inflation in May was lower than a year ago, when consumer prices skyrocketed 1.3 percent.

Fuel prices saw the first decline this year and were off 1.5 percent. Household equipment declined 1.1 percent, telecommunications equipment 2.4 percent and television, video and audio appliances 1 percent.

In the service sector, overall price levels in May were pushed up by the 3.2 percent increase in bus fares, while prices for mobile telecommunications services declined 2 percent.