RIGA - Latvia's gross domestic product surged ahead at an annual 11.1 percent in the third quarter, according to preliminary data from the statistics agency, surpassing analysts' forecasts and raising more questions about the economy's long-term sustainability.
The third-quarter indicator, which will be defined in more detail on Dec. 7, was higher than expected since for most of the three-month period the government's anti-inflation plan was in effect. The plan, approved in March but for the most part adopted in July, aims to curtail bank lending that has been the primary catalyst for economic growth in recent years.
Monthly indicators, such as retail sales, suggest that the economy is cooling, which is why many analysts were shocked by the third quarter GDP result.
"The growth was expected to be more moderate, at any rate it was expected to be below 10 percent," Andris Vilks, chief economist at SEB Latvijas Unibanka, told the Baltic News Service.
"It leaves us with a conclusion that economic growth has been driven by factors that cannot be traced on a regular basis," he added, mentioning legalization of the grey sector as an example.
Hansabanka's chief economist, Martins Kazaks, said that the preliminary third-quarter GDP growth data exceeded the bank's forecast significantly. "We expected GDP growth to be around 9 and 10 percent in the third quarter," he said, adding that he believes the statistics agency would lower the final result in December.
"This news seems surprising considering the drop in the growth of retail sales in August and September 's from 24.7 percent in July to 19.1 percent in August, and to 16.8 percent in September," he said. Lending growth has also slowed, he added.
The statistics bureau also announced that Latvia's exports grew 21.2 percent year-on-year from January to September to 2.9 billion lats (4.1 billion euros) compared to the same period in 2006, while imports increased 26.6 percent.
Meanwhile, the Bank of Latvia announced that the current account deficit reached 2.4 billion lats (3.5 billion euros) in the nine month period, expanding 52.8 percent year-on-year.
Latvia has consistently had the largest current account deficit in the European Union, a cause for alarm under any circumstances but particularly in the present environment of a global credit crunch (see sidebar on Page 5).
Last year the country's GDP expanded 11.9 percent, the highest in the European Union.
