Latvia Has Budget Surplus in Q1 2008

Latvia posted a provisional budget surplus of about 70 million lati ($158 million) in the first three months of 2008, the state treasury said today. The government had a provisional surplus of about 2 million lati in the month of March. Official budget figures will be released in mid-April, the treasury said.

Latvia's economy is slowing rapidly and while a budget surplus of about 1 percent of gross domestic product had been envisaged for this year this now seems unlikely to be achieved. Indeed there has been some discussion as to whether it might not in fact be advisable - given the rate of the slowdown in Latvia - to move sooner rather than later into suplus to try to avoid the now much feared "hard landing". Be that as it may we are still at this point in surplus, although the situation is more than likely going to change as the economy slows and revenues decline.

``The pace of growth is no longer as strong as last year, when revenue in the first quarter grew 26 percent,'' Finance Minister Atis Slatkeris said in the statement. ``Second quarter results will show if this pace of growth will remain for a longer period of time,''

A deficit now seems quite probable, since it has been estimated that Latvia would have a deficit equal to 1.5 percent of GDP this year on economic growth of 5 percent (which is the latest Latvian government growth forecast for 2008 made by Prime Minister Ivars Godmanis earlier this week), and my feeling is we are already way below that rate.

EU Economic Sentiment Indicator For the Baltics March 2008

According to the Estonian Institute for Economic Research Survey, consumer confidence bounced back slightly in March, from the ultra low reading of minus 16 in February to the pretty low one of minus 11 in March. To put things in a little perspective here, when the reading hit minus 11 for the first time in January, this was an all time historic low for the index, now, of course it isn't, since things got even worse in February, at least according to the sentiment index. On the other hand this does fit in with a variety of other data we have been getting which lead us in the direction of thinking that things weren't getting worse quite so rapidly in Estonia in March.




The European Commission has also now reported its eurozone “economic sentiment” indicator for March, with the composite number bouncing back a little from the February reading which its lowest level since December 2005. The indicator, which gauges optimism across all economic sectors and is regarded as a good guide to likely future trends, was back up to 102 after falling to 100.1 in February from 101.7 in January.

This indicator provides a little more evidence for the above hypothesis about Estonia, since as can be seen in the chart below, the Estonian index has stabilised since December, while those for Latvia and Lithuania continue to head down. Of course all of this is relative, since they are both at levels above the current Estonian one.

Latvia Industrial Output February 2008

Latvian industrial output again showed substantial signs of contraction in year on year terms in February, even if on a month on month basis, and as compared to January 2007, industrial production rose by 1.3%, according to the seasonally adjusted data from the Central Statistical Bureau. In mining and quarrying there was an increase of 4.3%, and in manufacturing of 1.5%, while in electricity, gas and water supply decreased by 6.8%.




Compared to February 2007 however, industrial output in February - adjusted for changes in the number of working days - decreased by 4.7%. In manufacturing there was a decrease of 1%, in electricity, gas and water of 10%, while in mining and quarrying the volume of output increased by 31.4%. So while manufacturing is still contracting on annual basis, it is perhaps doing so at a slightly slower rate. As is becoming typical at the moment, we need to see just a bit more data before reaching any strong conclusions.

Estonia Industrial Output February 2008

Well we have another sign today, following last weeks retail sales data, that things in Estonia have stabilised somewhat, although, as I keep arguing, it would be very premature to draw longer term conclusions from the data we have at this point. Industrial output - according to the latest data release from the statistics office - was up in February, on both January (1.8%) and February 2007 (2.6%). This follows on the back of a revised 4.2% increase in January.

Manufacturing output is also up, by 5.2% on February 2007, and by 2.4% (seasonally adjusted) on January. As can be seen in the chart below, December was very definitely a bad month, and even seems to have been an exception, so we now need to wait a little to see just where things move from here. Patience, I do believe, is normally a virtue in such situations.