Economic Analysis - Growth Outperformance To Continue - NOV 2017

BMI View: The Latvian economy continues to post impressive growth rates in line with our view for a strong pick-up in growth. With H117 seeing real GDP growth average 4.0% y-o-y , the risks to our 3.2% 2017 forecast are to the upside. We expect the economy to continue outperforming the region in 2018 and beyond as convergence with the eurozone continues.

Latvian real GDP growth came in at 4.1% y-o-y in Q217, following a downwardly revised 4.0% y-o-y figure in Q117. In q-o-q terms, the economy expanded by an annualised 5.2%. Leading indicators, such as the European Commission's Economic Sentiment Index and industrial production growth, point to continued strong growth, with the former at its highest level since before the Global Financial Crisis and the latter growing by an impressive 9.0% y-o-y on a three-month moving average basis. Our forecast for real GDP growth to come in at 3.2% in both 2017 and 2018 faces upside risks, and we expect Latvia to continue outperforming its eurozone peers.

From an expenditure perspective, private consumption continues to dominate growth, while fixed capital formation has turned positive after 2016's large contraction. From a production perspective the accelerated pace of EU fund disbursements is supporting the construction sector. Our Infrastructure team is forecasting total construction industry value to increase by 7.3% in 2017, following an estimated 18.4% contraction in 2016.

Fastest Growth Since 2012
Latvia - Real GDP Growth, %
Source: BMI, CSB

This article is part of our Central Europe & Baltic States coverage. To access this article subscribe now or sign up for free trial