The GDP flash estimate suggests accelerated economic growth in Latvia

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The strong GDP growth rate which has been observed since the end of last year and has led to improved economic growth forecasts continued to rise in the third quarter. The growth rate accelerated in a number of sectors in comparison with the second quarter.

In accordance with the flash estimate of the Central Statistical Bureau (CSB), GDP grew by 1.5% quarter-on-quarter in the third quarter of 2017 (at constant prices, seasonally adjusted data) posting a 5.8% increase year-on-year (non-adjusted data). When adjusted for calendar effects, the year-on-year increase is even more pronounced (6.2%). Looking ahead, the growth rate is most likely to be lower than before as a result of a higher base effect.

Activity in retail trade is also still on the rise, suggested by both the turnover data (in real terms) for the third quarter and an increase in value added in retail trade (5%). According to the CSB data on changes in retail trade turnover in September and the third quarter, the specialised trade companiesas well as the companies primarily selling household goods and goods for house furnishing continue to account for the largest positive contribution.

Retail trade turnover growth points to a solid increase in purchasing power and consumption. According to the data released by the European Commission, consumer sentiment is significantly more optimistic than at the beginning of the year; however, the improvement stopped in the third quarter. The upcoming sector development projects suggest that the retail trade activity will increasingly concentrate in larger centres allowing retailers to benefit from a more intensive consumer flow and save on certain expenses. This is important, since increased sector capacity will also create the need for additional labour. With respect to attracting new labour, the retail trade sector will face ever growing competition with other sectors such as the construction sector.

Construction has recovered at a remarkably rapid pace (23%) as a result of the renewed availability of the European Union (EU) funds and the growing private investment. This outcome needs to be viewed in the context of the very low performance in the third quarter of the previous year. The strong increase was already signalled earlier by the construction sentiment indicators which continue to improve also in the fourth quarter. The construction-related manufacturing sectors have also developed rapidly. Both mining and quarrying and manufacturing sectors such as manufacture of fabricated metal products, manufacture of building materials as well as wood industry posted increases in July and August. With the absorption of EU funds continuing and increasing, construction volumes will most likely grow further next year. Nevertheless, further rapid development will be increasingly dampened by a labour shortage and a rise in costs. For the time being, however, the data available for the third quarter with respect to this sector suggest only a moderate increase in prices.

It is the growing domestic demand, largely linked to construction, that increasingly contributes positively to manufacturing growth. Following a significant leap at the beginning of the year, the rise in the volume of exported goods has moderated. The growth outlook of trading partners suggests that external demand will positively contribute to manufacturing performance also next year; however, overall the sector's growth will most likely fall behind the rapid increase observed this year. Like in trade and construction, the labour shortage will become more notable in manufacturing as well. In the fourth quarter, almost one fifth of businesses mentioned it as one of the major factors constraining production.

In the third quarter, the transport sector saw the previously expected decrease in the volume of rail freight and cargoes. The volume of coal cargoes expanded at a much slower pace than in the first half of the year, while the decline in the volume of oil products accelerated once again. On the other hand, the amount of passenger transportation services provided at Riga Airport suggests a very good year for the air transport sector, and the volumes transported via pipeline have also increased. In a longer term perspective, assuming that the current geopolitical situation persists, the development of the transport sector will be weaker than the overall economic growth due to a decline in the volume of oil and coal cargoes.

Upon receiving new data on the development of the sectors of the economy, the GDP flash estimate will be further revised. Detailed GDP data will be published in a month. They will contain information on sectoral development, as well as GDP expenditure and income aspects.

APA: Zorgenfreija, L. (2018, 14. dec.). The GDP flash estimate suggests accelerated economic growth in Latvia. Taken from https://www.macroeconomics.lv/node/3962
MLA: Zorgenfreija, Līva. "The GDP flash estimate suggests accelerated economic growth in Latvia" www.macroeconomics.lv. Tīmeklis. 14.12.2018. <https://www.macroeconomics.lv/node/3962>.

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