The adjusted indicator supports rapid GDP growth in the first quarter

The adjusted indicator published by the Central Statistical Bureau supports the rapid growth of gross domestic product (GDP) in the first quarter, improving the provisional indicator both year-on-year and quarter-on-quarter by 0.1 percentage points. Thus, in the first quarter of the year, GDP has grown1.1% quarter-on-quarter (instead of the previously estimated 1.0%), whereas year-on-year, i.e. within one year,  GDP has grown by 6.9% (instead of the previously estimated 6.8%).

2012 is a leap year and the additional one day in February has a substantial impact on the performance in the first quarter:  if according to the data unadjusted to calendar days the annual growth was 6.9%, in the adjusted data it was 5.6% (5.5% according to the flash estimate).

Eurostat data indicate that in the first quarter Latvia was a European leader in terms of economic growth. The total GDP of the European Union retained its annual growth but it was negligible at only 0.1%. The euro area's 0.1% GDP, was preceded by a minus, i.e. it dropped. Quarterly, GDP in Europe has remained unchanged, which must be considered a good performance, given the drop in the fourth quarter.

In the second half of last year investment replaced exports as the main driver of growth, to a large extent due to the state's investments in infrastructure. In the first quarter of this year, investments continued to drive up the annual growth rate (increasing by 39.0%), whereas the annual growth rate of exports is gradually going down. Investments thus remain in the lead in this quarter as well.

The private consumption growth continued to be rather sluggish (5.4%), which was already suggested by the unconvincing dynamic of the average salary. Year-on-year, the average gross wages nominally grew by 3.7%, but taking into account the price rises, the improvement in purchasing power is negligible. The good news is that the rise of employment by 2.6% (y/y) ensures a higher living standard for a wider swath of the population.

As in previous quarters, the imports of intermediate consumption goods necessary for producing export goods and of investment goods were behind the high increase in the real imports of goods and services (by 9.5%). Export growth (by 9.9%), in contrast to the previous quarters, has outpaced import growth.

A more pronounced role in the GDP expenditure distribution has been played by the changes in stock levels, accounting for a 3.7 percentage point negative contribution to GDP growth. In the first quarter of this year, the stock levels dropped slightly whereas last year they had an upward dynamic.

Evaluating the contribution by branch, it becomes obvious that just as in the previous quarters the rise in gross domestic product was determined by four branches: manufacturing (2.0 percentage points), trade (1.5 percentage points), construction (0.9 percentage points) and transport (0.6 percentage points). A substantial contribution in the GDP rise is still made also by product taxes (1.1 percentage points).

For quite some time now, Latvia's growth perspectives are under threat by external circumstances instead of weak competitiveness, overblown state expenditure or problems in the banking sector, which, with collective effort, have been taken off the agenda for the time being. As in a thunderstorm, we keep watching the flashes of lightning in the global economy and awaiting the thunder to follow: will it be loud and dangerous or just a quiet rumble? In recent quarters, the economy was boosted by the long delayed domestic demand and a better than expected situation in the main trading partners (also primarily on account of a more robust domestic consumption in these countries). Now, however, we can be sure of an expected drop in the growth rate predicted by almost all exporters.