Adjusted indicator points to a faster GDP growth in the third quarter

According to the data of the Central Statistical Bureau, the adjusted indicator points to a faster growth of gross domestic product (GDP) in the third quarter than in the flash estimate. Thus the predictions of economists that it might be adjusted upward have been confirmed. In the third quarter, GDP has grown 1.7% (instead of the previously estimated 1.3%) quarter-on-quarter, and 6.6% (instead of the estimated 5.7%) year-on-year.   

Private consumption in the third quarter grew 5.4% year-on-year, with the rate of growth improving. The rate has increased notwithstanding the higher base, because in the second half of 2010, household expenditures posted a more rapid increase because of delayed consumption and more active use of accruals from earlier periods. Because of the weak purchasing power and high household debt, resumption of private consumption is  taking place at a relatively slow pace. Even though the rises in employment and average salary ensure an increase in the amount of income at the disposal of the population, price rises have acted to limit improvement in purchasing power.

In the third quarter of 2010, a steep rise was observed in the investment dynamic which, along with the following fluctuating trend that was nevertheless positive overall, ensured a notable annual growth rate. In the first three quarters, the amount of investment rose by an average 25% year-on-year (including 24.4% y/y in the third quarter). Positive changes were observed in the investment structure as well. Productive investment grew most rapidly – in the first nine months of 2011, one half of non-financial investment was investment in industry and transport. The rises in investment is ensured both by investment projects financed from EU funds and planned investment by the large domestic enterprises as well as the resumption of lending to competitive projects. A substantial contribution to the rise in investment has also been made by direct foreign investment.

The volumes of goods and services imports have been growing very rapidly since last year (17.5% y/y in the third quarter), which is primarily the result of imports of intermediate consumption goods necessary for the production of export goods. The rapid rise in investment has recently been stimulating the imports of capital goods as well.

The real growth of goods and services exports in the third quarter has remained high (10.3%). The growth rate has dropped somewhat because of the higher base. Yet developments in the global economy preclude any hope of the same dynamic growth next year. If we hoped earlier that the negative processes in the south of Europe will not have so much impact on Latvia because these countries are not among our main trading partners, the last few months have shown us that domestic and foreign demand is deteriorating also in the Baltic states. Because of the suspension of the operations of "Snoras" Bank, the growth prospects of the Lithuanian economy have been adjusted down substantially. The Estonian GDP showed substantial growth (by 8.5%), yet even in Estonia optimism as to future developments is abating. In recent months, the confidence indicators of both businesses and consumers have been deteriorating rapidly. Growth is halting in industry as well. The drop in domestic consumption in our neighbouring countries will act to shrink the demand in these countries for imports, which in turn will show up in Latvian export data.

Evaluating branch performances it is obvious that the GDP growth was primarily the contribution of four branches: trade (1.8 percentage points), construction (1.4 percentage points) and manufacturing (1.2 percentage points), transport (1.1 percentage points). What is new compared to the previous quarter is construction becoming one of the leaders and, moreover, as "number one". In previous quarters, construction posted drops. An important contribution to the GDP growth was also constituted by product taxes (0.9 percentage points). A drop and an accordingly negative contribution (0.8 percentage points) in GDP changes was posted by one branch, i.e. real estate transactions.

APA: Rutkovska, A. (2019, 22. feb.). Adjusted indicator points to a faster GDP growth in the third quarter. Taken from https://www.macroeconomics.lv/node/2271
MLA: Rutkovska, Agnese. "Adjusted indicator points to a faster GDP growth in the third quarter" www.macroeconomics.lv. Tīmeklis. 22.02.2019. <https://www.macroeconomics.lv/node/2271>.

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