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Friday 24.11.2017 | Name days: Velta, Velda
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Economists: growth likely to accelerate in next quarter

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Baltic news, News from Latvia, BNN.LV, BNN-NEWS.COM, BNN-NEWS.RUAlthough in the Q1 of 2011, the gross domestic product (GDP) growth was mainly fueled by exporting or export-related industries, Latvia’s GDP rise lags behind Lithuania (3.5%) and Estonia (2.4%). However, the economic growth is likely to accelerate in the next quarter, economists concede.

Nordea Bank senior economist Andris Strazds:

Detailed calculation of the GDP in Q1 of 2011 shows a slight increase in the Latvian economy over Q4 of 2010, compared to 2.4% in Estonia and 3.5% in Lithuania.

If compared to final quarter last year, retail trade drop of 1.6% in Q1 of 2011 most likely means household consumption has fallen as well. This is due to a consumption tax rise in early 2011, as well as, energy and food price gains, leading to a drop in households’ actual purchasing power. However, these factors are unlikely to have a prevailing impact on growth in coming quarters, because, for instance, a substantial price correction has taken place on the oil market and the global food price surge has also stopped.

Investments might grow in the coming quarters, for example, in road infrastructure, where much more funds are available this year than in 2010. Moderate export growth is forecast to be ongoing, since the Latvian economy keeps expanding on the key export markets.

As regards neighbouring countries, differences in growth rates could be tied to a number of factors – more favourable environment for investment and balanced government finances in Estonia, as well as lower household loan obligations in Lithuania, enabling to direct a greater share of revenue to consumption.

Swedbank senior economist Lija Strašuna:

Economic growth has slowed down (for example, the average quarterly growth last year was 0.9%), yet this is partly  due to changes in the tax refunds in early 2011.

The Q1 GDP growth was primarily fostered by exporting or export-related industries – manufacturing, hotels and restaurants, transport and communications, domestic trade (which is affected by manufacturing companies’ growth, as they sometimes export their products via trading companies).

However, despite the still rapid export growth (14.7% over Q1 of 2010), the increase in import has been even steeper (20.7%), thus the overall net export impact on GDP was negative. Capital goods rise partly contributed to the increase in imports, as investments in equity capital grew rapidly in Q1 (28.4%).

While, household consumption growth was more sluggish (only 3.6%) and inconsistent. Residents’ purchasing power did not improve significantly, because the small wage increases were offset by inflation. Moreover, unemployment rates still remain high.

One of the factors hindering growth is clearly capacity constraints in manufacturing. Although greater investment activity is expected in this area, it will take time for investments to boost the manufacturing capacity. Another factor is the existing debt burden. The loan portfolio continues to shrink, because before assuming new commitments companies have to deal with the old ones. Also, household debt servicing costs comprise a larger part of the income than a few years ago (since income is much lower).

The GDP growth forecast for 2011 still remains around 4%. The economic expansion may accelerate slightly in the next quarter, with investment activity rising and export growth continuing. On a sector basis, exporting and export-related industries will maintain faster growth. However, this is a rather «sluggish scenario». If high-quality structural reforms were implemented faster, the economic growth would be swifter.


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