GDP in the second quarter has fallen by 0.3% compared to the first quarter (it is true, the decline has been halved). Unfortunately, sentiment indicators and other operational data do not give high hopes for growth for the third quarter of this year either – this is reflected, for example, in the Operational Model estimates. Economic motor or “mover” (from the Latin word motor translation) has suffocated.
What led to the weakening in the second quarter of 2023 from the perspective of GDP utilization? The decline was determined by a slight decrease in consumption, investment and exports of the population. Considering that the internal and external demand needs decreased in the second quarter, they were able to cover the existing reserves of warehouses and store shelves, reducing the need for imports.
Private consumption, after an unexpectedly, even incredibly high increase in the last quarter of last year, is getting weaker and weaker, and a more significant improvement can only be expected in the autumn, when in the fight “Inflation against wage growth” wages will finally start to prevail, improving the purchasing power of the population. Autumn comes with the challenges of the heating season, but I think that this season we are much more prepared for them than before.
The dynamics of the investment is reminiscent of trying to start a vehicle with an almost discharged battery – a small roar, and then it dies. The level of investments in the first quarter of the year, after a long period of silence, “snorted” unexpectedly, but reliably loudly, which is basically explained by the flood of investment projects put into operation. But with that, the “roar” ended, and in the second quarter there is already an unpleasant silence. Sometimes it is confusing, because everyday we see a lot of construction work all around us. It is possible that the level of investment has not been evaluated and will be revised with new, more advanced projects put into operation.
The real export of Latvian goods and services is also not very encouraging, where the service sector has taken over the role of the main driver of growth, while the export of goods has stagnated. The period of weakness for the export of wood products continues – the slowdown in construction in trade partner countries has reduced demand. This year, there is also bad news for grain export – due to the weather, the quality of the grain has been damaged (respectively also the selling price), not to mention a part of the harvest that has been completely destroyed. Therefore, there is no basis for great optimism about export growth until the end of the year.
In general, we can conclude that both the “internal combustion engine” (domestic demand) and the “external combustion engine” (external demand) of the Latvian economy are working poorly, and we are unlikely to expect a symbolic spring in macroeconomic indicators this year.
2023-09-13 07:03:48
#slow #pace #economy
