Latvian GDP, Q2 2008

Flash estimate of Latvian statistics office shows that Latvian GDP grew 0.2% year-on-year in the 2nd quarter of 2008. This was slightly weaker than 0.4% predicted by a panel of 10 experts for Bloomberg and slightly better than what I expected (I thought we will see a negative number in Q2).

Since we are at a rapid turning point, quarterly data might show the trends better. Quarter-on-quarter, the economy grew 3.2%. However, the 1st quarter is economically slow every year and the 2nd quarter always shows big growth number compared to the 1st quarter.

Here is a rough seasonal adjustment:

• over last 5 years, the average quarter-on-quarter economic growth in Q2 has been 6.1%;
• throughout the year, the average quarter-on-quarter growth is 2.3%;
• thus, economic growth is by 6.1-2.3=3.8% faster in the 2nd quarter.

Subtracting that 3.8% from 3.2% growth rate gives a seasonally-adjusted growth of -0.6% compared to the previous quarter. It's better than -1.9% that we saw in the 1st quarter (using the same methodology). But Latvia is still, very clearly, in a recession.

If the trend continues, the Q3 will have a year-on-year GDP "growth" of around -3% and, for the entire year 2008, it will be around -1%.