On GDP in the second quarter of 2009

Judging by operational information, a steep drop in activity was characteristic of all branches of the economy. For that reason, the provisional data on the annual decrease of the real volume of GDP in the second quarter are hardly surprising: according to the Central Statistics Department, it was 19.6%.  Although the annual drop is somewhat steeper than in the first quarter, the seasonally adjusted GDP decrease has slowed down significantly over the previous quarter, indicating some signs of stabilization. While it may be premature to talk about renewed growth of the economy, we can ascertain that the previously observed free fall of the economy has been brought under better control.

Foreign as well as domestic demand remained weak in the second quarter, having a negative impact on the results of both the goods and services sectors. Greater than in the first quarter was the annual drop in retail trade and, according to indirect indicators, the activity in the construction and real estate sector contracted more rapidly, the results of the financial sector are worse, and the volume of collected taxes decreased. On the upside, the real production volumes have gone up during the quarter, and the annual drop has also been more moderate than in the first quarter; some results of certain cargo transit transport have been more positive.

The future development of the Latvian economy will be determined by a number of previously mentioned factors and conditions. Foreign demand in Latvia’s main trade partners may improve over the next year and, with the production costs dropping in Latvia and export guarantees added, businesses could have a better chance of competing in these markets. The reduction of budget expenditure will no doubt act to decrease domestic demand in the second half of the year, yet the straightening out of budget matters will counteract the reigning sense of insecurity, which is currently a serious obstacle to future development.