Baltic States. When expensive doesn’t mean better
Estonia’s consumer price index (CPI) grew 1% in annual terms in November, data from Statistics Estonia showed on December 7. As in recent months, the increase was driven by growing prices of alcohol and tobacco products.
The reading sees CPI in positive territory for a fourth consecutive month after deflation dominated between May 2015 and July 2016. In monthly terms, consumer prices inched up 0.1%, largely due to growing prices of food, which were partially offset by fall of prices in the transport sector.
Alcohol and tobacco products rose 7.3% in annual terms on the back of a rise in excise duty introduced earlier this year. Prices in the education and hotels sectors grew 5.4% y/y and 2.8% y/y, respectively.
Food prices grew 1.1% overall, while clothing and footwear became 1.9% more expensive in November. Prices in the transport sector contracted 0.5%.
Estonian CPI is predicted to finish the year at 0.5%, according to the October forecast from the International Monetary Fund. The European Commission predicts price growth at 0.8% in 2016.
The Latvian economy grew a seasonally adjusted 0.3% y/y in the third quarter, a second reading from the Central Statistical Bureau (CSB) showed on November 30.
The reading is a revision from an expansion of 0.7%, which the CSB published at the end of October. The poor result illustrates a considerable slowdown of economic growth in comparison to the 0.8% expansion reported for April-June. The pace of growth has been slowing since the third quarter of 2015, and July-September was the weakest since the fourth quarter of 2010.
Unadjusted growth came in at 0.3% y/y as well, a significant disappointment compared to the 2% expansion recorded the previous quarter. In adjusted quarterly terms, the economy expanded 0.2%, slowing from 0.5% in the second quarter.
As was the case in April-June, ongoing problems in the construction sector, which contracted 22% y/y in the third quarter, contributed to the unimpressive GDP reading in July-September. The drop could not be offset by the limited contributions from manufacturing, which expanded 3.7%, or trade, which advanced 3.9%, the CSB notes.
In terms of expenditure, GDP growth benefited from a 3.2% growth in household consumption, but that was offset by a 12.2% drop in investment.
Lithuanian GDP grew an unadjusted 1.7% y/y in the third quarter of 2016, according to a second estimate released by Statistics Lithuania on November 30.
The reading confirms the first estimate released lasat month, and marks a slowdown in economic growth compared to a revised 1.9% for the second quarter. It is the second time growth has slowed since the first quarter of 2015, ending an encouraging trend that had suggested a robust recovery could be on the cards. The 2.4% gain recorded in first quarter of this year now looks to be a peak.
Growth in the third quarter was mainly driven by manufacturing, wholesale and retail trade, repair of motor vehicles and motorcycles, transportation and storage, accommodation and food services, Statistics Lithuania notes. The performance of the construction, agricultural, and forestry and fishing sectors proved a brake.
Household consumption expenditure grew 1.4% and general government expenditure 0.2%. Exports expanded 0.9%. Investment however dwindled 3.6%, in line with expectations.
In quarterly terms, GDP grew an unadjusted 9.8%. In adjusted terms, GDP grew 1.7% on the year and just 0.1% q/q.
Despite growth slowing, analysts maintain an optimistic outlook. “Household consumption will remain one of the main growth drivers, but will ease as real wage bill growth subsides. Capacity utilisation for the industrial sector is at a record high and growth in the main export markets is expected to remain stable while the negative effect due to the Russian crisis fades away,” Swedbank noted in comments to the first GDP estimate.
Investment is likely to recover and export growth continue, they conclude. The analysts expect GDP growth to accelerate to 3% in 2017.