Gross domestic product growing rapidly in the second quarter

According to the information provided by the Central Statistical Bureau, gross domestic product (GDP) in the second quarter of 2015 increased by 1.2% (seasonal factors excluded) quarter-on-quarter due to one-off factors. It is the fastest quarterly GDP growth in recent memory; last, such a rapid quarterly increase was seen in 2013. According to workday adjusted data, GDP in the second quarter of 2015 grew 2.6% year-on-year.

Latvijas Banka's operational forecast models during the quarter pointed to the possibility that growth could be rather fast. In the second quarter, good results were observed in manufacturing, which determined the relatively fast growth of GDP. Energy sector output also recovered somewhat after the very unsuccessful first quarter. Of course as the main source of success once again should be mentioned the factor of "KVV Liepājas metalurgs". It is the second quarter of this year where the greatest effect of it resuming work can be felt, having a positive effect on both the output amount of manufacturing and GDP. In the production of chemical substances, there was one larger consignment of production that ensured an increase in manufacturing output in April. Meanwhile, GDP growth was curtailed by the performance of the transportation branch – the indicators of port and railroad operations were still less than positive. News that come from the construction industry also point, at best, to a lack of increase in output.

The currently available information indicates that this year's GDP result will be close to the one predicted previously – 2.0%. Even though the second quarter result should be considered as very good and it could ensure additional few decimal points to the GDP of this year, yet it should be recognized that this has resulted from one-off factors in manufacturing. It is doubtful whether in the coming quarters any factors will manage to maintain GDP growth at such a high level. Just the opposite is likely – negative developments could be the case. It is no secret, for instance, that the dairy producers and the fishing industry are not experiencing the best of times. The future functioning of "KVV Liepājas metalurgs" is still uncertain. Further deterioration in the relationship with Russia cannot be excluded. Over last week, the value of the rouble has again begun to drop gradually and the introduction of new sanctions cannot be excluded. At the same time, it is worth mentioning some positive factors. Since the rise in compensation remains relatively fast, it fuels increased demand. The question remains, however, how long this rise in compensation will continue without a sustainable growth in exports and productivity.  

An expanded GDP, which will provide more detailed information on the factors behind GDP growth and prospects for the rest of the year, will be published on 31 August 2015.