Bloomberg News

Latvian Economy Quickens to Maintain Fastest Pace in EU

May 10, 2012

Latvia’s economic growth accelerated in the first quarter to maintain the fastest pace in the European Union, suggesting the Baltic nation is weathering the continent’s debt crisis.

Gross domestic product rose a preliminary 6.8 percent from a year earlier, compared with 5.7 percent growth in the fourth quarter, the statistics office, based in the capital, Riga, said today by e-mail. That’s more than the 4.5 percent median estimate of four economists in a Bloomberg survey. GDP rose a seasonally adjusted 1 percent from the previous quarter.

Latvia’s economy is rebounding from the world’s deepest recession in 2008-2009, which erased almost a quarter of output. Austerity measures mandated by an International Monetary Fund- led bailout helped the Baltic nation restore competitiveness and resume economic growth.

The economy is doing “miracles,” said Violeta Klyviene, an economist with Danske Bank A/S (DANSKE) in Vilnius. “These are exclusive trends in the EU context. Growth is balanced, driven both by positive domestic and external demand. Latvia’s export structure is rather balanced, which provides hope that exports will remain the key driver of economic growth despite turbulence in the euro area.”

The yield on Latvia’s 2021 dollar bond fell 0.01 percentage point to 5.03 percent today after the announcement.

Weathering Crisis

“The Latvian economy has not yet been significantly affected by the slowdown in the euro area,” said Annika Lindblad, an analyst with Nordea Markets in Helsinki. “Latvia’s main trade partners are not among the most- vulnerable economies and the domestic economy has held up well. Activity in the first quarter was likely supported by continued growth in the export sector as well as domestic demand.”

Growth may “substantially” exceed the government’s official forecast of 2 percent this year, Prime Minister Valdis Dombrovskis said in a May 7 interview. Both Nordea Markets and Danske Bank said today they may revise their estimate of 2 percent on Latvia’s growth.

Standard & Poor’s on May 2 raised Latvia’s credit rating to BBB-, restoring its investment grade for the first time since 2009.

“Today’s data should ease fears of contagion from the euro-zone crisis in Latvia,” said Liza Ermolenko, an economist at Capital Economics Ltd. in London. “The breakdown is likely to reveal that the domestic economy continued to strengthen in the first quarter, driven by robust growth in investment and consumer spending. This is certainly good news given that investment is still well below its pre-crisis levels.”

To contact the reporter on this story: Milda Seputyte in Vilnius at mseputyte@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net


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