Latvian GDP in the second quarter showed growth at 0.6% (seasonally adjusted data). Estimate of the GDP growth for the second quarter in annual terms has not changed, it makes up 2.1% (seasonally unadjusted data). In general, in the first quarter the GDP growth in annual terms slowed down to 2.1% (2.4% in the first half of 2015).
Domestic consumption continued to be the primary driver of the Latvian economy, which in annual terms grew sharper than in the first quarter. That was predictable – whereas wages continued growing, but consumer prices at the average slightly reduced.
Although the actual GDP turned to be significantly lower than the forecasted by the government, so far taxes are collected in accordance with the plan. In the first half of 2015 tax receipts reached almost 30% of GDP in annual terms, but in the first half of this year they already made up 31% of GDP. The situation concerning budget remains stable.
It is expected that in the second half of the year the money circulation from the EU funds would slightly speed up, the investment activity would start recovery. But this would be unable to compensate for weakness in the beginning of the year, therefore the GDP growth forecast for this year would make up about 2%.
The key factors that can gear down the Latvian economy refer to the external events. These are the slowing down of the growth of the EU economy and geopolitical uncertainty.
The global economy is still characterized by uneven and rather slow development. According to an updated forecast in main economies of Western countries – USA and Germany – the growth has slowed down. In general, in the eurozone within the upcoming two years it would remain at the level of about 1.5% per annum.
The Brexit voting staggered the British economy. But support from the Bank of England, apparently, would allow to escape morbid recession and economy of Great Britain, although slowly, but continue growing. No real Brexit has happened yet, the procedure for the preparation for this process will begin in the middle of the next year. But the process itself is expected not earlier than in 2019.
Good news is that recession in Russia has ended. But recovery will be weak. This is connected also with the lack of visible rise in oil prices and with the remaining strong influence of the state on economy.
The geopolitical risks can dictate to the global economy the worst development scenario. In coming years the world will often find itself at the crossroads, where a wrong choice can be painful for economy.
Referendum in Italy is scheduled for October this year, presidential elections in the USA will take place in November, in 2017- elections of the president and of the Parliament of France, but in 2018-presidential elections in Russia. Any of these political processes may one way or another influence the economic development of Latvia.