Latvia climbing out of hole

RIGA - Economic growth in Latvia is accelerating, says Swedbank chief economist Dainis Stikuts, commenting on the Central Statistical Bureau’s data on GDP in the second quarter of 2011, reports Nozare.lv. According to the Bureau, in the second quarter of 2011, Latvia’s gross domestic product grew 5.6 percent, compared to the corresponding period last year.
In the first half-year, Latvia’s GDP increased 4.6 percent as compared to the respective period last year. In the second quarter of 2011, GDP totaled 3.5 billion lats (5 billion euros), amounting to 1,579 lats per capita at current prices. In the first half-year, Latvia’s GDP stood at 6.5 billion lats.

“The bureau’s flash estimate already indicated that economic growth in the second quarter will be more rapid than in the first. The data on GDP has slightly improved, compared to the flash estimate, which can be partially explained by the transition to a more precise methodology, which replaced the historical data on GDP,” explained Stikuts.
The economist believes that Latvia’s economic development is still based on manufacturing industries, their growth and export. “Even though service sectors have increased their contribution, there is still reason to believe that their development is directly linked to export,” emphasized Stikuts.

Investments into the country continue to grow - by 21.7 percent - which indicates an increase in the country’s economic potential. Household consumption is also adequate, at 4.4 percent, and while employment and income slowly increase, they are negatively affected by price hikes and housing expenses, said Stikuts.
“Even though GDP growth in the second quarter is slightly more rapid than expected, Swedbank maintains its GDP forecast for this year at 4.4 percent. Nevertheless, the economic slowdown in Europe will definitely have an impact on Latvia’s export indicators, reducing the investment activity. We expect that GDP growth will decrease in the second half-year,” concluded Stikuts.

Though GDP growth will slow pulled down by exports which are expected to slow this fall, the country’s total export volume this year will increase more than 25 percent as compared with 2010, said Swedbank senior economist Lija Strasuna.
Compared to June, the country’s export of goods slightly dropped in July, mainly due to a decrease in exports of wood and chemical products. At the same time, the largest increase was registered in exports of metal products. The year-on-year export growth fell from 30.2 percent in June to 19.8 percent in July. It is expected that the export growth will remain at around 19 percent in August and slow this fall, points out Strasuna.

However, Latvia’s imports of goods experienced rapid growth in July, mainly due to a two-fold increase in imports of machines and mechanical equipment. Such growth is usually followed by a decrease and, therefore, the country’s imports will most likely slightly fall in August.

“In July, Latvia’s imports grew 29.5 percent, and it is expected that it will slow down during the next few months. The country’s import increase in 2011 could be similar to its export increase - above 25 percent,” said the economist.
In the first half of 2011, Latvia’s exports increased by 36.9 percent, or 761.8 million lats, compared to the respective period in 2010, according to the Central Statistical Bureau data. The country’s imports grew 34 percent, or 862.6 million lats.