Latvia: Growth slumps to over three-year low in Q4 2019
The economy grew 1.0% in the fourth quarter of 2019, according to the second GDP estimate released by Latvia’s Statistical Institute on 28 February. The outturn was down only marginally from the preliminary figure of a 1.1% increase but was well below the third quarter’s 2.9% year-on-year growth and marked the weakest expansion since Q3 2016. Meanwhile, in seasonally- and working day-adjusted quarter-on-quarter terms, growth fell to 0.1% in the fourth quarter, from 0.6% in the third quarter.
Weaker domestic demand drove the downturn. Fixed investment contracted for the first time in three years and spearheaded the overall deceleration (Q4: -3.7% year-on-year; Q3: +5.3% yoy), amid deteriorating business confidence and a likely drop in inflows from the EU cohesion funds. Furthermore, private consumption growth ran out of steam in the quarter (Q4: +1.8% yoy; Q3: +5.0% yoy), against the backdrop of a somewhat faltering labor market—reflected in increasing unemployment and falling employment rates. Lastly, public spending growth softened in the final quarter of last year (Q4: +2.4% yoy Q3: +3.2% yoy).
Meanwhile, momentum was similarly muted on the external front. Exports of goods and services rose at a much softer clip in the fourth quarter (Q4: +1.2% yoy Q3: +5.4% yoy) in light of the subdued global economic environment. Meanwhile, imports decelerated in the quarter (Q4: +0.4% yoy Q3: +1.2% yoy), reflecting lackluster consumer and capital spending at home.
Growth is seen edging up this year, mostly on the back of strong domestic demand. Consumer spending is seen driving the overall growth, thanks to a still-tight labor market, rising wages and subdued inflationary pressures. This, coupled with healthy investment activity growth, should more than offset a likely downturn on the external front amid the fallout from the coronavirus outbreak.