According to the fast and, unfortunately, very short GDP data published today by Statistics Estonia, annual gross product in the third quarter increased by 4.8%. On the other hand, quarter-on-quarter growth was weak at only 0.3%. The result is worse than expected.
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The data available so far suggest that growth in manufacturing and trade, the main sectors of external and domestic demand, has been stronger. Airport and transit data also signal a successful quarter (year-on-year) in transport, with even transit up 5% quarter-on-quarter. The balance of payments signals that exporters of high value-added services are doing well.
We will be waiting for the updated and updated data in a month, but perhaps the truth will be revealed only after a repeated review of the data after several years.
However, despite today’s news and also the new epidemiological constraints that were imminent, this year’s GDP growth could be around 5%. At the end of the year, economic activity could fall by 1-2% compared to the third quarter, this has been taken into account. Luminor’s forecast for early September forecasts GDP growth of 5.1%. We can expect a very similar result next year.
The overall sentiment index (ESI) in our main market in the European Union is at a super high level (117.6 points), only 0.4 points behind the all-time high. The sentiment index in European industry, where what is happening most directly affecting our economy, is only 0.3 points behind the historical peak. Construction is also very close to the peaks of optimism, which is an important outlet for our industry. The conditions for export demand are currently very good, with difficulties mainly related to the supply of components, especially to the electronics industry.
At the beginning of the fourth quarter, Latvian industry has the largest order book ever, corresponding to 4.5 months of production. Investments are being made to increase the capacity of export industries. Offices with an area of 120 thousand square meters will be built in Riga, where jobs can be created in the export industries of at least 10,000 people. Investors are building factories in cities that are really trying to make that happen.
There is currently a great deal of uncertainty among Latvian businesses and consumers, and the overall balance of economic optimism and pessimism has been very close to zero for the last three months. October marks the all-time high willingness of households to save, which is logically linked to a lukewarm willingness to spend money. Consequently, a large consumption boom is not expected after the reduction of restrictions. In addition, high energy prices will also hurt consumption, especially in the first half of next year, when most of the high bills will come. At the end of next year and in 2023, there could be deflation of energy prices, which is signaled by future transaction prices.
The Latvian economy will develop. However, improving the opportunities offered by society can only help those who are trying to help themselves, this applies to people as well as companies, cities and counties. Cities will survive with a development policy that corresponds to reality, which in Riga means a development policy for high value-added services, but in most of Latvia – first of all, industrial policy, although services will play a growing role there.
Also, only those who are trying to help themselves can help to survive the pandemic. The current crisis is largely to blame for apathy, a sense of doom, disbelief in one’s abilities and science.
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