Danske: The Worst Case Scenario Is The Reality ... As GDP Collapses 18% y/y

Ooouch! This sounds painful!

The Danske Bank noted today:

This afternoon we saw really shocking GDP numbers for Latvia for Q1. GDP dropped by 18% y/y – much more than consensus forecast and our expectation of a drop of 16.8% y/y – and a very significant deterioration from Q4 08, in which GDP dropped by 10% y/y.
The details for GDP have not been published yet, but it is almost clear that the drop in GDP is broad based – with both domestic and external demand.
We already expected that the Latvian economy might decline by 15% y/y in 2009, but today’s GDP numbers mean that we would have to adjust our GDP forecast in a significantly more negative direction and it is now likely that GDP will drop by more than 20% as an average for 2009.
The very weak GDP numbers are also a clear indication that the Latvian government budget situation will have further deteriorated. It looks like the IMF agreed fiscal deficit target of around 7% of GDP will be very difficult to achieve. We believe that uncertainties with regard to the budget situation have increased significantly.

Nordea bank commented:

Latvian Q1 GDP contracted by 18% compared to a year ago (Consensus -16.2%, Nordea -13.5%). The clearly steeper than expected fall confirmed the view that the economy has gone on an even steeper downhill from Q4, when the economy already shrank by -10.4%.
The weakness in the Latvian economy is broad-based. The decline in both the manufacturing and the service sectors continued in Q1. The export sector is slow, due to dampened world demand, the situation of companies is strained, as demand is weak and the financing situation is tough. Furthermore, the situation of the consumers in Latvia is difficult, as unemployment has shot up and wage growth has slowed.
The year 2009 is likely to be difficult in Latvia, and the government faces the challenge of keeping the budget deficit within a limit accepted by the IMF in order to receive the rest of the emergency loan. At the moment the government is working towards a deficit of 7% of GDP, more than the 5% initially agreed upon with the IMF. According to the Prime Minister the discussions whether the IMF will allow a larger deficit are still going on. Keeping the deficit within 5% of GDP is turning out to be increasingly difficult as the economy has contracted further.
We foresee the economy contracting by 12% in 2009, with the recession easing towards the end of the year. In 2010 we expect a decline of 3%, as the world economy starts to recover.

But the "green shoots" were observable also in Latvia, as exports climbed more than 10% in March on month, but still more than 20% down on year ...