According to the Bank of Latvia, GDP has grown quarter-on-quarter

Releasing the data on gross domestic product in the first quarter of 2010, the Central Statistics Agency confirmed the previous flash estimate, indicating a 6% GDP drop year-on-year (including the overall value added that dropped by 6.2% over the course of the year). Even though the data on the seasonally adjusted GDP changes compared to the fourth quarter of 2009 are not yet available, in our assessment, they were positive, i.e. GDP has grown 0.3-0.4%.

As the situation in the foreign markets keeps gradually improving, a real growth of goods and services exports has been observed for several consecutive quarters, reaching a positive annual growth in the first quarter of 2010 of 4.6%. Owing to a rising foreign demand and further improvements in the competitiveness in Latvian products, the processing sector posted a notable annual growth of 6.8%. The results of entrepreneur surveys compiled by the European Commission also indicate a positive development in the sector. Growth was likewise observed in the transport and communications sector due to a rapid rise in transportation services.

At the same time, the annual drop in private consumption was less. In the fourth quarter of 2009 it was -19.5%, but in the first quarter of 2010 only -5.8%. Similar to GDP, consumption, according to our estimates, has also grown quarter-on-quarter (according to seasonally adjusted data). Even though the income available to the population continued to drop, the rapid improvement in consumer confidence became a stabilization factor in private consumption as the consumer behaviour changed and cautious savings were accumulated less. A possibly important role in the consumption dynamics was played by the expected repayment of the pensions withheld in 2009 according to the decision of the Constitutional Court.

With the industry and service capacities were still much underused, investment in fixed assets, continued to decrease, which accounted for the most substantial negative contribution in the GDP changes. The formation of gross equity capital in the first quarter dropped 44.4% year-on-year. A rapid annual drop in investment was observed in nearly all sectors, except the information and communications services sector.

Despite export growth, the positive net export contribution decreased. That was due to the more rapid rise in imports mainly because of increased private consumption and pro-cyclical behaviour of savings (changes in savings in the first quarter accounted for an important positive contribution to GDP changes). As private consumption stabilized and demand for intermediate import goods necessary for the manufacture of export products grew, the rate of the real drop in goods and services imports continues to decrease.

In order to achieve an annual rise in the economy after the rapid downslide, positive changes are in order for another two or three consecutive quarters. Thus a GDP annual rise could be registered at the end of the year.