Latvia flag Latvia: Economic outline

Economic Outline

Economic Indicators

Since its independence, Latvia has implemented market-oriented reforms. The country's economy has performed well due to steady growth in domestic consumption and the contribution of foreign investment. As a member of the EU since 2004 (and of the Eurozone since 2014), it has benefited from substantial European funding. According to data compiled by the Central Statistical Bureau (CSB), Latvia experienced a 0.3% decrease in its GDP in 2023. At current prices, the GDP for 2023 amounted to EUR 40.3 billion. A significant slowdown in private consumption and exports was observed, while investment and public consumption expenditure exhibited robust growth.  Overall, the EU Commission predicts that economic activity will rebound in 2024 with a growth rate of 1.7%. In 2025, growth is expected to accelerate further to 2.7%, primarily propelled by domestic demand. Investments are anticipated to remain robust, buoyed by inflows from EU funds and improved financial conditions. Moreover, export growth is forecasted to increase, aligning with the general improvement in demand from key trading partners.

Latvia's macroeconomic indicators are generally positive, as the country pursues tax and labor reforms in accordance with its stability program. The IMF estimated the fiscal deficit at below 3% of GDP in 2023, down from 4.6% in 2022, driven by stronger-than-expected tax revenues and reduced spending on support initiatives. Although energy support measures are expected to be nearly fully phased out in 2024, increased spending on education and healthcare wages, along with higher defense and interest expenses, will likely maintain expenditure/GDP at a relatively stable level. The projections indicate that the general government deficit will hover below 2% of GDP throughout 2024-2025, representing a departure toward wider deficits compared to pre-pandemic levels (with an average deficit of 0.5% between 2015-2019), primarily due to the escalation of medium-term expenditure constraints. The government debt-to-GDP ratio decreased marginally to 40.6% in 2023 and is expected to follow a downward trend over the forecast horizon, reaching 38.7% by 2025 (IMF). Fitch Ratings projects that the government's interest payments will rise to 2.4% of revenues in 2024 and further to 3.0% in 2025, up from an anticipated 1.9% in 2023. In the latter half of 2023, HICP inflation experienced a swift deceleration, primarily due to the decrease in energy prices. Nonetheless, the transmission of elevated energy costs to other sectors, notably services, accelerated throughout the year. Despite this, headline inflation maintained an elevated average level of 9.9% throughout 2023. The IMF expects the rate to decline to 4.2% this year and 3.3% in 2025.

The labor market remained resilient, marked by wage growth surpassing inflation rates and thereby supporting real disposable incomes. The unemployment rate was estimated at 6.7% in 2023, with a marginal decrease expected over the forecast horizon (IMF). Latvia has to face a strong emigration of skilled youth and the country has one of the lowest population growth rates in the EU (-0.3% in 2022 - World Bank, latest data available), with birth numbers declining continuously. The latest data published by the Central Statistical Bureau (CSB) show that 22.5% of the country’s population is at risk of poverty. The GDP per capita (PPP) was estimated at USD 39,956  in 2022 by the World Bank.

 
Main Indicators 20222023 (E)2024 (E)2025 (E)2026 (E)
GDP (billions USD) 41.1746.6750.3554.0957.46
GDP (Constant Prices, Annual % Change) 2.80.52.63.23.2
GDP per Capita (USD) 21,94724,92926,95229,01030,877
General Government Balance (in % of GDP) -4.3-2.8-1.8-1.5-1.8
General Government Gross Debt (in % of GDP) 40.840.639.538.738.3
Inflation Rate (%) n/a9.94.23.32.4
Unemployment Rate (% of the Labour Force) 6.96.76.66.56.4
Current Account (billions USD) -1.93-1.39-1.19-1.19-1.24
Current Account (in % of GDP) -4.7-3.0-2.4-2.2-2.2

Source: IMF – World Economic Outlook Database, 2016

Note: (e) Estimated Data

 
Monetary Indicators 20162017201820192020
Euro (EUR) - Average Annual Exchange Rate For 1 GHS 0.240.200.180.170.16

Source: World Bank, 2015

 

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Latest Update: March 2024