Latvia: GDP growth likely to have dropped further

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Violeta Klyvienė / Danske Bankas

Latvia: GDP growth likely to have dropped further

2008 m. Ketv., Rugpjūčio 7d.

Tomorrow, the Latvian Statistical Office will release its preliminary estimate of GDP growth for Q2 08; we
look for a further deceleration to 0.1% y/y from 3.3% y/y in Q1 08. The consensus forecast of 0.6% y/y is a
bit more optimistic than our figure; however, given that the Latvian economy has deteriorated quite
significantly, we see moderate downside risk relative to consensus.

Despite a big slowdown in domestic demand in Latvia, consumer price inflation remains stubbornly high at
17% y/y. We expect a rather subdued development over the summer months, but with the upcoming
heating price hike, inflation is likely to remain around the 17% level for the whole of 2008.
The Latvian industrial sector continues to perform very badly in Q2 industrial production dropped 6.1% y/y
mainly due to output declines in food and beverages, wood and its product industries. There is unlikely to be
much improvement in output this year as the European economies slow further. Retail sales dropped 8.3%
y/y in June, mainly due to food and consumer goods.

In conclusion, we expect a downside surprise for tomorrow's GDP number, and there are no signs that the
slump in growth is coming to an end. Further out, we expect GDP growth to move into negative territory,
with a rebound unlikely to happen before well into 2009.

Whole Article - GDP growth likely to have dropped further.pdf

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