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Friday 25.05.2018 | Name days: Junora, Anšlavs
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Flash estimate on Latvian GDP surprises in a negative way

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Baltic news, News from Latvia, BNN-NEWS.COM, BNN-NEWS.RU, Peteris Strautins

Peteris Strautins

GDP flash estimate surprises, but in a negative way, economists say, adding that the Latvian economic recovery is not yet over and a new «breakthrough» is expected.

Nordea bank senior economist Andris Strazds:

GDP flash estimate on the first quarter of 2011 shows the economy is growing only 0.2%. Given the retail turnover dropped 1.6% in the first quarter, compared to the same period last year, most likely household consumption has fallen as well. This is not a surprise, considering the consumption taxes rise in early 2011, as well as energy resources and food price gains. At the same time exports and investments might have brought bad news as well, because obviously they compensated only for household consumption drop in the first quarter, instead of ensuring the overall economic growth.

Swedbank senior economist Dainis Stikuts:

GDP flash estimate surprises in a negative way. We will see the true reasons for that only when the Central Statistical Bureau publishes more detailed and specific information. At the moment, we can only guess that most likely the GDP growth rate was slowed down by the poor household consumption. Although retail turnover grew quite rapidly in the first quarter (about 2%), still other components might have had a negative impact on that. This is linked to the low employment, slow salary rise, as well as surging inflation, reducing the purchasing power of the people. Export grew at a quite good pace, however, import slowed down the positive impact of it.

Still, we are keeping the growth outlook for 2011 at 4%.

DnB NORD Bank economic expert Pēteris Strautiņš:

Looking at quarterly changes, last year’s average growth rate was around 1%. In early 2011, the growth slowdown appeared highly unlikely because the large heating costs, budget consolidation and the talks about its continuation in the next year’s budget have clearly affected consumption. However, the quarterly drop in growth to 0.2% does not reflect this trend.

According to the Central Statistical Bureau (CSB), tax collection on products has negatively impacted the quarterly GDP. Changes in normative acts and regulations in the first quarter resulted in unusually large VAT refunds, in order to make this tax collection system more business-friendly. The negative impact of these changes on tax revenues will be short term. Like elsewhere in Europe, this winter Latvia’s GDP was affected by weather conditions, apparently to be blamed in the mentioned construction drop in the CSB’s report.

The March foreign trade data released on Tuesday, May 10, and a new record for exports of goods do not suggest that the current Latvian economic growth cycle is exhausted, on the contrary. Since the first quarter GDP was clearly reduced by temporary factors, the following periods will see a rapid breakthrough.

Considering the above mentioned, Tuesday’s flash estimates of GDP do not require the revision of this year’s forecast. The annual growth rates will improve in the following quarters and the overall economic growth will be close to 5%.

 

 


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