The GDP dynamics confirm trends toward economic stabilization

The flash estimate of GDP indicates that the direction of the economy in the third quarter has been slightly better than expected, thus confirming the already previously observed trends toward economic stabilization. As foreign demand gradually resumed and the competitiveness of Latvian producers improved, an amelioration of the situation was observed in several processing industry branches, which was reflected in a small rise in processing industry production over the second quarter. Production volumes in the processing industries were however materially lower than last year, reflecting the persistently weak domestic demand and the very gradual improvement in the situation outside the country.

As the domestic demand dropped further, it had an effect both on retail dynamics and on the output of several domestically oriented processing industry branches as well as on the activity in construction, which is evidenced the albeit growing yet still very low construction-related confidence.  In transport as well both domestic and international shipments by rail and port activities decreased compared to one year ago.

According to the flash estimate, the third quarter GDP was overall 18.4% lower than the year before.

It is expected that the gradual recovery in foreign demand as long as the improvement in business costs competitiveness will be reflected in a rise in export activity, which is going to be the main engine of the economic recovery. After the structural reforms have been successfully carried out, we can expect a gradual improvement in domestic demand.  The Bank of Latvia predicts a 17-17.5% drop in GDP for this year and 2-2.5% drop for 2010.