The growth of gross domestic product is maintained by retail trade and it is impeded by the energy sector

According to a flash estimate by the Central Statistical Bureau, gross domestic product (GDP) in the first quarter of 2015, according to seasonally adjusted data, grew 0.4% quarter-to quarter. Year-on-year (working-day adjusted data), GDP grew by 2.1%. Even though the result in the context of recent years is not brilliant and, from the point of view of long-term convergence, the desirable growth rate might be faster, the circumstances at hand must be taken into account.  The external environment situation in the last year has been extremely complicated: the Latvian economy is "caught" between the consequences of the geopolitical events and an unstable growth of the euro area. In view of these circumstances, the results match the situation. Such a result of the first quarter is also very close to the one predicted and allows us to keep the previously proposed vision about economic growth.

Although in the case of a flash estimate, a more detailed breakdown by growth-determining factors is not available, the information included in the CSB press release as well as operational data leads us to believe that the good performance of retail trade (the rate of annual growth at +7.5%) has been one of the greatest contributors. Owing to low fuel prices and household maintenance costs (lower bills because of the warmer weather), the disposable income of households, and consumption in the first quarter, has been high. With the situation in the labour market gradually improving and disposable income of households increasing, the confidence of consumers in their financial status has also grown, which is also reflected in the data regarding spending. At the same time, households are still somewhat conservative in their decisions: income at their disposal is growing at a faster rate than spending.  This means that a part of the income is put away in savings – either for some larger purchase or for a rainy day.  Judging by the fact that the total trade sector has failed to grow year-on-year, however, the good performance of retail trade is counteracted by the weaker results in wholesale trade whose successes and failures depend also on export markets.  

Judging by the operational data of the sector, the contribution of manufacturing to quarter-on-quarter growth of GDP was positive, but the contribution of the energy sector was expressly negative. The warm weather conditions in January and February had a fundamentally negative impact on the output of the energy sector.  The operational statistics of the transport sector (cargo shipments by railroad and cargo handling in ports) suggest that the trends are negative: the amount of cargoes handled in ports and the amount of cargo shipments by railroad are dropping year-on-year. The amounts of construction production have slightly dropped in the first quarter of the year (1% year-on-year).

Growth in the coming quarters and also the total GDP growth will largely depend on several factors. The monetary policy carried out by the European Central Bank (TLTRO and PAPP) has already made its contribution to the improvement in confidence indicators.  Yet whether or not the real economy will keep up with them will become clear in time. Low oil prices are an additional stimulus for economic growth both in Latvia and the euro area, yet it is not fully clear how long the period of low oil prices will last.  Developments in the geopolitical situation will likewise be of crucial importance.  Currently, both households and entrepreneurs are delaying making decisions on serious investment – primarily for geopolitical reasons. As the geopolitical climate improves, the caution of participants in the economy in decision making could also slightly diminish, which would let the economy grow faster. And vice versa: should the situation escalate anew, the participants in the economy can maintain caution or become even more cautious in limiting their spending. A piece of positive news is also the fact that in the second quarter, "KVV Liepājas metalurgs" is resuming work, which is bound to have a positive impact on manufacturing and, indirectly, also on other branches of the economy.

The GDP flash estimate is based on operational data on some of the branches of the economy as well as on tax revenue data. An updated and expanded GDP assessment, which will give a clearer idea of growth-determining factors, will be published on 29 May.