Saturday, May 10, 2008

Latvia is landing hard!

Yesterday, Latvia reported its flash estimate of GDP growth:
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.
3.6% is a pretty scary figure considering that it includes the high growth 2nd and 3rd quarter of 2007.
As Latvia does not reporte seasonally adjusted figures, those interested in quarterly changes are left to do their own calculations. According to my calculations Q1 2008 saw a 4,2% (non-seasonally-adjusted) quarterly contraction in economic activity. On average from 1996 to 2007, the first quarter in Latvia had 2,1% slower growth than the average quarterly growth. So as 2,1% - 4,2% = -2,1 so i believe that

in Q1 2008 Latvian economy contracted 2,1%

That is definitely hard landing! I mean this is quarterly contraction, not annual. USA for example likes to report quarterly GDP figures in annualised rates. That would be 8,4% for Latvia now!
Okay, that figure should be taken with a pinch of salt. Firstly, my calculations are not exactly proper statistical seasonality analysis. Nor did i correct for any changes in working days. Latvian Abroad blogger reaches for a little softer 1,9% economic contraction, but these were also back-of-the-envelope calculations.
Secondly, this is just the first estimate and during periods of quick change, these estimates can be off by a wide margin.
Thirdly, some people believe that q-o-q growth rates in such a small economy as Latvia is nonsense anyway - the effects of large transactions can strongly influence the figures and the statistical adjustments can be really irrelevant as there is less seasonality and more one-time fluctuations.
For those interested in the developments, i suggest to follow the Baltic Economy Watch and Latvian Abroad blogs for best available up to date economic analysis of the country. The updated figures for Latvian GDP will be published on June 9th. Estonian flash estimate of GDP growth will come on May 14th.

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