After evaluating the latest statistical data of the Central Statistical Bureau of Latvia, it looks as though Latvia remains ahead of other European countries in terms of economic growth; even ahead of Estonia and Lithuania. However, without investments in private and social sectors, there is a risk of Latvia falling behind sometime in the future, say economists of Latvian banks.
Bank of Latvia economist Agnese Bičevska:
The main economic engine of Q1 of 2013 was private consumption. Its increase (6.6%) in Q2 of 2013 provided a 4.7% contribution to GDP growth. The increase of private consumption was mostly due to the increase of residents’ income. In addition to that, unlike the kind of income increase that was noted during fat years, the current economic growth is considered sustainable and is based on improving general work productivity.
There is another aspect that also contributes to consumption growth – the reduction of previously made savings. Households choose different ways of preparing for euro adoption. Some residents deposit their cash funds to savings funds, some – hurry to currency exchange locations, others – spend their savings. It is expected that this situation will persist in at the end of 2014.
Speaking of the near future, it is likely that the national economy will continue to progress along its already set course – having private consumption as the main economic growth foundation and export as a necessary tool for long-term development.
Swedbank’s senior economist Lija Strašuna:
As it was expected, the latest data of the Central Statistical Bureau of Latvia show a more rapid GDP growth than the preliminary assessment did. The economy’s annual growth rate has increased to 4.4% in Q2. Latvia remains a leader in Europe in this regard.
It should be added here that economic growth managed to reach such heights because import had been rather weak this year (compared to that of 2012), not because domestic demand or export grew more rapidly during this whole time.
The main concerns currently circulate around investments. Even though a reduction earlier this year was relatively small, investments in capital remain lower than they were one year ago. It is also one of the main reasons why import is so weak (equipment, machineries and other mechanical goods are not supplied in large enough quantities). Investments are necessary for the public and private sectors of Latvia’s economy. Without investments in these sectors, it will be hard to maintain and potentially increase export market shares.
Swedbank maintains its economic outlook for Latvia’s economy at 4.3%.
Nordea Markets senior sales manager Gints Belēvičs:
GDP growth will be notably larger than it was in our preliminary assessment (3.8%). It means that economic growth is more rapid than we had previously predicted it would be. It is noted that Latvia’s GDP increase of Q2 of 2013 is larger than that of Lithuania (3.8%) and Estonia (1.3% according to preliminary estimates).
Industrial production output had reduced 0.6% in Q2 of 2013, which, in turn, reduced GDP growth rate by 0.1%. It is also worth mentioning the 4.2% reduction of prices on import goods and services in comparison with the previous period. This helped improve GDP growth rate.