Latvia GDP 2008 Q1 GDP Flash Estimate

Latvijas Statistika published the following 2008 Q1 GDP flash estimate on its website this morning:

In accordance with flash estimate published the CSB, which is based on currently available statistical data and econometric models, the Gross Domestic Product (GDP) increased by 3.6%, compared to first quarter of 2007.

More precise data and more extenive analysis of first quarter 2008 GDP will be published on June 9, 2008. In the meantime we are rather left guessing again. First of here is the year on year chart:

If we look at the rate of decline indicated by the slope of the line over the last three quarters one thing is clear: this is now that long feared "hard landing". I think though that had already been clear for some time from the data we had been seeing from retail sales and industrial output.

I will try and put something more extensive up either later this afternoon or early tomorrow, but if we take into account that quarter on quarter growth over the 3 previous quarters had been at a rate of 2.4, 2.5 and 1.2% respectively, and that this added up amounts to 6.1% growth in 3 quarters it is pretty clear that we must have seen quite a strong contraction (in seasonally adjusted terms, since the other numbers are seasonally adjusted) in Q1 2008. More later.

Update

What a chump I am sometimes. Basically the easiest thing to miss is the blindingly obvious. Now what we do know - according to the flash estimate, which can be revised of course, but as one commenter (see below) astutely notices normally the revisions have been downwards of late - we do "know" that GDP probably rose by 3.6% year on year, and we do know that GDP in Q1 2007 was 2058.156 million lats (i just looked it up at Lavijas statistikas). So if we increase this number by 3.6% we get 2132.249 million lats (since I just did the calculation), and that puts us at a level lying below the 2,192.109 million lats of Q2 2007 and below the 2,240.902 million lats of Q3 2007 (all at constant, inflation adjusted, prices).




That is to say that - in constant price terms - Latvian GDP hit a peak at some point bewteen Q2 and Q3 2007 (lets say August 2007) and since that time has been steadily CONTRACTING. Now I know there are probably hundreds of different ways of skinning a chicken, and of course you can read data everywhichway you want to, but as far as I am concerned there is no getting away from it, on any reasonable criterion the Latvian economy is now in recession, and has been since the middle of last year, and as a result I am now more than happy to stick with my original recession call which I made when I first had site of the detailed Q4 2007 data.

As I say the Latvian economy is contracting, and I see no sign (or jutification for thinking) that it is going to start expanding again in the immediate future. So I really don't see where people are getting all those positive GDP growth numbers for 2008 from at this point, I really don't.

Estonia Inflation April 2008

Estonia's inflation rate rose to a 10-year high in April as food and housing costs jumped, showing Baltic countries may face spiraling inflation even as their economic expansion slows. Consumer prices rose an annual 11.4 percent, the most since April 1998, after a 10.9 percent increase in March, according to the statistics office in Tallinn.

In April 2008 compared to April of the previous year, the prices of goods changed by 10.4%, of which the prices of food by 15.3% and the prices of manufactured goods by 6.5%. The prices of services increased 13.4%. Regulated prices of goods and services changed by 21.4% and non-regulated prices by 8.7%. The index was mainly influenced by the price increase of food and by the increase in the expenditures on housing. The prices of motor fuel also increased, accompanied by the increase in the prices of transport services. Dairy-, cereal- and meat products gave more than two thirds of the price increase of food. The biggest impact on the increase of expenditures on housing had the price increase of heat energy.

On average, the prices of goods and services in April were 1.0% higher than in March.
The consumer price index was mainly influenced by the increase in the prices of food and heat energy. Fresh vegetables and cereal- and meat products gave 80% of the price increase of food.

If we weren't in a stagflationary scenario before, we certainly seem to be in one now . Today's data shows just how difficult it'll be for the authorities to bring inflation back down, despite a rapidly slowing economy.



The finance ministry has sais that it expects double-digit inflation to continue ``in the coming months,'' citing external pressures from rising global food and fuel prices.

Estonia's central bank last month forecast 2008 economic expansion of 2 percent, expecting a contraction at the end of the year, after lower spending and property investment pushed growth to 4.8 percent in the fourth quarter, the lowest in almost six years.

The central bank said today that April price increases were caused by rising prices of food, raw materials and heating charges in several regions due to higher global oil prices. Price increases are potentially in line with the central bank's forecast of 9.8 percent average inflation in 2008.

Latvia Industrial Output March 2008

In March 2008, industrial output in Latvia fell 5.5 percent on a working day adjusted basis and at constant prices when compared with March 2007, according to the latest data from Latvijas Statistika. Output in mining and quarrying shrunk 21.1 percent, and output in the manufacturing industry was down by 9.2 percent. Only output in power, gas and water supply increased - by 3.6 percent.

Compared to February, this March, Latvia's industrial output contracted by 1.5 percent on a seasonally and working day adjusted basis. This composite figure included a 10.8 percent drop in mining and quarrying, a 4.3 percent decrease in manufacturing and a 4.3 percent growth in power, gas and water supply.

Certainly if we look at the charts we will see that the slowdown is now pretty dramatic.




Over the entire first quarter of 2008, industrial output in Latvia declined by 3.1 percent, compared to the same period a year ago.Over the three-month period, output decreased by 4.7 percent in manufacturing and by 0.3 percent in power, gas and water supply, but rose 4.6 percent in mining and quarrying.




Now when we saw the GDP data for the last quarter of 2007 I was arguing at that point that Latvia had quite probably already entered recession (ie quarterly negative growth), and when we come to look at this industrial output data for Q1 2008and put it up against the retail sales data (see chart below) it is very difficult not to think that the Latvian economy is now well mired in recession, especially if we take into account the fact thgat at this point the Latvian government was still trying to run a fiscal surplus, so there is no relief on that front either. So Latvia has now almost certainly got itself well bogged down in recession (even while the inflation fire continues to roar). The only really big remaining question is just how long it will have to wait to come out of this recession, and just what the Latvian economy will look like (in a structural sense) when we get to that point.

A sound banker, alas, is not one who foresees danger and avoids it, but one who, when he is ruined, is ruined in a conventional way along with his fellows, so that no one can really blame him.
John Maynard Keynes

EU Economic Sentiment Index For the Baltic Countries

Economic confidence across the eurozone is eroding rapidly, with increasing signs that the growth slowdown is hitting the region’s labour market, a closely-watched survey has shown.

The European Commission’s eurozone “economic sentiment” index has fallen sharply from 99.6 in March to 97.1 in April – the lowest level since August 2005. With the indicator regarded as good guide to growth trends, the unexpectedly steep decline pointed to a marked deceleration in economic activity.




The latest data could fuel speculation that the European Central Bank will cut interest rates later this year. Eurozone inflation data showed eurozone prices rising at an annual rate of 3.3 per cent this month – down from 3.6 per cent in March – suggesting that the worse may be over in terms of price pressures.


If we turn to the Baltic countries we can see that Latvia and Lithuania continue their steady downward course, while Estonia begins to decline again after a few months of seemingly marking time. The deterioration in Estonian sentiment in April is pretty consistent I would say with the other data we have been receiving lately, like the industrial output for March.




Basically I think the Baltic countries should pay attention to what is happening across the rest of the EU , and in particular to the eurozone (although the UK economy is also clearly losing speed fast). The fortune of these countries is now of particular interest to Baltic citizens since the Baltic economies are now all export dependent given the boom bust cycle which domestic demand has just passed through. So really now what happens to your potential customers really does matter to you.




As can be seen from the above chart, Italy's economy continues - like Venice - to sink steadily, while the two eurozone economies which had the strongest housing booms - Spain and Ireland - head steadily off the cliff, with Spain having poll position, and by quite a long margin. My basic guess is that the mechanism for a slowdown in central and eastern europe will operate through Germany. basically the German economy is very heavily dependent on exports, and German GDP growth is now very sensitive to export volume growth. The slowdown in the UK, Italy and Spain - which are all important German customers will in all likelihood have a significant negative impact on the German industrial output dynamic, and we saw an indication of this in the relatively weak employment growth in April in Germany. Since most of the CEE is locked into the German economy quite strongly this loss of momentum in the German economy will be felt across the zone, and in a sort of negative lose-lose dynamic this impact on output in the CEE will work its way back home to Germany again. That is to say I would be expecting to see quite a significant slowdown in Germany in the second half of 2008.