Economic and Political Overview

flag Latvia Latvia: Economic and Political Overview

In this page: Economic Indicators | Foreign Trade in Figures | Sources of General Economic Information | Political Outline | COVID-19 Country Response

 

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) 40.4543.6045.4748.2750.75
GDP (Constant Prices, Annual % Change) 3.0-0.31.72.42.5
GDP per Capita (USD) 21,56723,15324,19425,73927,113
General Government Balance (in % of GDP) -5.3-2.0-2.4-2.2-1.7
General Government Gross Debt (in % of GDP) 41.543.543.242.942.6
Inflation Rate (%) 17.29.12.03.62.2
Unemployment Rate (% of the Labour Force) 6.96.56.56.56.4
Current Account (billions USD) -1.93-1.75-1.73-1.88-1.71
Current Account (in % of GDP) -4.8-4.0-3.8-3.9-3.4

Source: IMF – World Economic Outlook Database , Latest available data

Note: (e) Estimated Data

Main Sectors of Industry

The agricultural sector contributes 5% of GDP and employs 7% of the active population (World Bank, latest data available). It is dominated by cattle breeding and dairy farming, in addition to the production of grain cereals (barley, wheat, rye, and oats), sugar beets, potatoes, and vegetables. Fishing and forestry are also important components of the primary sector. Apart from timber, which is largely exported, Latvia has almost no natural resources. Almost 30% of Latvia’s territory is destined for agricultural use. Since the early 90s, the structure of land management changed significantly, with the liquidation of collective farms in favor of household farms and – to a greater extent - of private farms, which currently dominate the country’s rural sector. According to provisional data from the Central Statistical Bureau, in 2023, an 8.1% decrease was noted in the volume of agriculture, forestry, and fishing, primarily due to a 7.8% drop in crop and livestock production and a 9.2% decline in forestry and logging. Conversely, there was a 2.2% increase observed in the fishery sector.

The industrial sector contributes 21.6% of GDP and employs almost one-fourth of the active workforce (24%). The construction, metallurgy, industrial food-processing, and mechanical engineering sectors are booming. Latvia is well-known as an important producer of railway equipment, radios, refrigerators, medicines, timber, and steel by-products. The manufacturing sector is estimated to account for 13% of the total GDP. Data published by the Central Statistical Bureau of Latvia (CSB) show that industrial production output decreased by 4.5% year-on-year in 2023. Output in manufacturing decreased by 4.5%, in electricity and gas supply by 0.8%, and in mining by 19% over a year. The country has to import all its energy products, mainly from Russia, and has been trying to diversify its sources following the Russian invasion of Ukraine and the resulting sanctions imposed by the EU.

The Latvian economy is driven by the services sector which contributes 61.7% of GDP and employs 70% of the active population. Thanks to its attractive fiscal regulation, Latvia has developed a large financial services sector. Transportation and ICT are also important activities for the country’s economy (with more than 6,900 companies operating in the latter sector and a 6% contribution to GDP). Transportation, in particular, contributes nearly 7% of GDP and employs more than 8% of the workforce (official governmental figures). The banking sector comprises 16 banks, including 12 credit institutions registered in Latvia, and four branches of European institutions (European Banking Federation). In 2023, the value added of services increased by 0.8% y-o-y (CSB). The information and communication sector experienced a 3% increase. The largest sub-sectors, computer programming and consultancy, grew by 9.7%, and the provision of information services saw a 7% rise. However, telecommunication services witnessed a decline of 9.9%.

 
Breakdown of Economic Activity By Sector Agriculture Industry Services
Employment By Sector (in % of Total Employment) 6.8 23.5 69.6
Value Added (in % of GDP) 5.1 20.9 62.1
Value Added (Annual % Change) 7.0 -2.7 4.2

Source: World Bank - Latest available data.

 

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Monetary Indicators 20162017201820192020
Euro (EUR) - Average Annual Exchange Rate For 1 MUR 0.030.030.020.030.02

Source: World Bank - Latest available data.

 
 

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Indicator of Economic Freedom

Definition:

The Economic freedom index measure ten components of economic freedom, grouped into four broad categories or pillars of economic freedom: Rule of Law (property rights, freedom from corruption); Limited Government (fiscal freedom, government spending); Regulatory Efficiency (business freedom, labour freedom, monetary freedom); and Open Markets (trade freedom, investment freedom, financial freedom). Each of the freedoms within these four broad categories is individually scored on a scale of 0 to 100. A country’s overall economic freedom score is a simple average of its scores on the 10 individual freedoms.

Score:
72,3/100
World Rank:
30
Regional Rank:
17

Economic freedom in the world (interactive map)
Source: Index of Economic Freedom, Heritage Foundation

 

Business environment ranking

Definition:

The business rankings model measures the quality or attractiveness of the business environment in the 82 countries covered by The Economist Intelligence Unit’s Country Forecast reports. It examines ten separate criteria or categories, covering the political environment, the macroeconomic environment, market opportunities, policy towards free enterprise and competition, policy towards foreign investment, foreign trade and exchange controls, taxes, financing, the labour market and infrastructure.

Score:
6.70/10
World Rank:
36/82

Source: The Economist Intelligence Unit - Business Environment Rankings 2020-2024

 

Country Risk

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Foreign Trade in Figures

The Latvian market is open and competitive, with foreign trade representing 149% of GDP (World Bank, latest data available). According to the Central Statistical Bureau, in 2023, Latvian exports were dominated by machinery and mechanical appliances, electrical equipment, wood articles, and prepared foodstuffs, which accounted for 16.2%, 15.1%, and 9.8% of the total respectively, followed by chemical products, mineral products, and vegetable products. Among Latvian imports, the most significant commodities included machinery, mechanical appliances, electrical equipment, transport vehicles, mineral products, and chemical products, constituting 19.3%, 13.2%, 11.4%, and 10.2% of the total import value respectively.

With its 530 km-long Baltic coastlines on the west, Latvia is bordered by Belarus and Russia to the east, Estonia to the north and Lithuania to the south. This geographical position allows the country to function as a bridge between the two major economic areas of the EU and the CIS. At the same time, it also makes the country vulnerable to the external context, as shown during the Russia-Ukraine crisis and the following sanctions towards the Russian Federation. In 2023, Latvia’s biggest trading partners were Lithuania (19.8% of Latvia's total trade turnover), Estonia (9.9%), Germany (9.3%), Poland (7.6%), and Sweden (4.4%). Lithuania accounted for the largest share of exports (18.2%), followed by Estonia (11.5%), Germany (6.9%), Sweden and Russia (5.9% each). As per imports, Lithuania (21.1%), Germany (11.2%), Poland (10.6%), Estonia (8.5%), and the Netherlands (4.4%) led the list (data CSB).

The country has a structural trade deficit (notably due to its energy imports), which stood at 3.4% of GDP in 2022 (World Bank, latest data available). According to the provisional data provided by the Central Statistical Bureau of Latvia, in 2023, Latvia exported goods valued at EUR 18.9 billion, reflecting an 11.2% decrease compared to 2022. Imports totaled EUR 23.2 billion, marking a decrease by 12.5% compared to the previous year. In 2023, exports to EU countries made up 69.1% of the total volume of Latvian exports and decreased by EUR 1.7 billion or 11.4% compared to 2022.

 
Foreign Trade Indicators 20192020202120222023
Imports of Goods (million USD) 18,95918,44124,44629,50127,114
Exports of Goods (million USD) 15,70516,33720,83324,10022,446
Imports of Services (million USD) 3,5293,3234,2725,1445,766
Exports of Services (million USD) 6,2575,5366,2867,5878,127
Imports of Goods and Services (Annual % Change) 3.1-0.315.311.7n/a
Exports of Goods and Services (Annual % Change) 2.1-0.35.99.1n/a
Imports of Goods and Services (in % of GDP) 60.558.967.176.2n/a
Exports of Goods and Services (in % of GDP) 59.859.963.770.3n/a
Trade Balance (million USD) -2,952-1,758-3,267-4,282n/a
Trade Balance (Including Service) (million USD) -230453-1,253-1,838n/a
Foreign Trade (in % of GDP) 120.3118.8130.8146.5n/a

Source: WTO – World Trade Organisation ; World Bank , Latest Available Data

 

Main Partner Countries

Main Customers
(% of Exports)
2023
Lithuania 18.1%
Estonia 11.6%
Germany 7.0%
Russia 6.0%
Sweden 5.9%
See More Countries 51.4%
Main Suppliers
(% of Imports)
2023
Lithuania 21.2%
Germany 11.1%
Poland 10.6%
Estonia 8.5%
Netherlands 4.3%
See More Countries 44.2%

Source: Comtrade, Latest Available Data

 
 

Main Products

22.5 bn USD of products exported in 2022
Wood sawn or chipped lengthwise, sliced or peeled,...Wood sawn or chipped lengthwise, sliced or peeled, whether or not planed, sanded or end-jointed, of a thickness of > 6 mm 5.7%
Petroleum gas and other gaseous hydrocarbonsPetroleum gas and other gaseous hydrocarbons 5.5%
Wheat and meslinWheat and meslin 4.2%
Telephone sets, incl. telephones for cellular...Telephone sets, incl. telephones for cellular networks or for other wireless networks; other apparatus for the transmission or reception of voice, images or other data, incl. apparatus for communication in a wired or wireless network [such as a local or wide area network]; parts thereof (excl. than transmission or reception apparatus of heading 8443, 8525, 8527 or 8528) 3.6%
Fuel wood, in logs, billets, twigs, faggots or...Fuel wood, in logs, billets, twigs, faggots or similar forms; wood in chips or particles; sawdust and wood waste and scrap, whether or not agglomerated in logs, briquettes, pellets or similar forms 3.2%
See More Products 77.8%
27.9 bn USD of products imported in 2022
Petroleum gas and other gaseous hydrocarbonsPetroleum gas and other gaseous hydrocarbons 9.5%
Petroleum oils and oils obtained from bituminous...Petroleum oils and oils obtained from bituminous minerals (excl. crude); preparations containing >= 70% by weight of petroleum oils or of oils obtained from bituminous minerals, these oils being the basic constituents of the preparations, n.e.s.; waste oils containing mainly petroleum or bituminous minerals 5.7%
Electrical energyElectrical energy 4.8%
Motor cars and other motor vehicles principally...Motor cars and other motor vehicles principally designed for the transport of persons, incl. station wagons and racing cars (excl. motor vehicles of heading 8702) 3.0%
Telephone sets, incl. telephones for cellular...Telephone sets, incl. telephones for cellular networks or for other wireless networks; other apparatus for the transmission or reception of voice, images or other data, incl. apparatus for communication in a wired or wireless network [such as a local or wide area network]; parts thereof (excl. than transmission or reception apparatus of heading 8443, 8525, 8527 or 8528) 2.8%
See More Products 74.2%

Source: Comtrade, Latest Available Data

 
 

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Main Services

Source: United Nations Statistics Division, Latest Available Data

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Sources of General Economic Information

Ministries
Ministry of the Economy
Ministry of Finance
Ministry of Foreign Affairs
Ministry of the Environment
Ministry of Transport and Communications
Statistical Office
Central Statistics Bureau
Official Statistics Portal
Central Bank
Central Bank of Latvia
Stock Exchange
Nasdaq Nordic
Search Engines
TV net (in latvian)
Info 1188 (en anglais)
Google search engine
Economic Portals
Economic portal - The Baltic Times

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Political Outline

Current Political Leaders
President: Edgars RINKEVICS (since 8 July 2023)
Prime Minister: Evika SILINA (since 15 September 2023)
Next Election Dates
Presidential: 2027
Parliamentary: October 2026
Main Political Parties
Latvia has a multi-party system, where no one party has a chance of gaining power alone, and parties must work with each other to form coalition governments. The major parties/alliances in the country are:

- New Unity (JV): centre-right political alliance formed by Unity, the Latgale Party and four other regional parties
- United List (AS):  centrist and regionalist alliance formed by the Latvian Green Party, the Latvian Association of Regions, and the Liepāja Party
- National Alliance (NA): national-conservative and right-wing populist political party
- Union of Greens and Farmers (ZZS): agrarian political alliance made up of the Latvian Farmers' Union, Latvian Social Democratic Workers' Party, and For Latvia and Ventspils
- "Harmony" (SDPS): centre-left, promotes closer ties with Russia
- The Progressives (P): social-democratic
- Latvia First (LPV): right-wing, populist
- For Stability (S!): centre, Eurosceptic
- Humane Latvia (PCL): centre to right-wing, populism
- New Conservative Party (JKP): conservatism
- Development/For! (AP!): centre, social liberalism
- Unity (V): centre-right, liberal conservatism, pro-Europe
- Union of Farmers and Greens (ZZS): centre
- Latvian Russian Union (LKS): left-wing, Russian minority politics.
Type of State
Democratic parliamentary republic.
Executive Power
The President is the head of state and is elected by the parliament in a separate election for a four-year term. The President is the commander-in-chief of the armed forces. He appoints the Prime Minister as head of the government who, in turn, has to receive a vote of confidence from the parliament and serves a four-year term. The Prime Minister enjoys executive powers which include implementation of the law in the country and running the day-to-day affairs. The Council of Ministers is nominated by the Prime Minister and appointed by the parliament.
Legislative Power
The legislature in Latvia is unicameral. The Parliament consists of 100 seats; its members are elected by direct popular vote to serve four-year terms. The parliament is called Saeima.

The executive branch of the government is directly or indirectly dependent on the support of the parliament, often expressed through a vote of confidence. Legislative power is vested in both the government and the parliament. The government does not have the power to dissolve the parliament. The people of Latvia enjoy considerable political rights.

 

Indicator of Freedom of the Press

Definition:

The world rankings, published annually, measures violations of press freedom worldwide. It reflects the degree of freedom enjoyed by journalists, the media and digital citizens of each country and the means used by states to respect and uphold this freedom. Finally, a note and a position are assigned to each country. To compile this index, Reporters Without Borders (RWB) prepared a questionnaire incorporating the main criteria (44 in total) to assess the situation of press freedom in a given country. This questionnaire was sent to partner organisations,150 RWB correspondents, journalists, researchers, jurists and human rights activists. It includes every kind of direct attacks against journalists and digital citizens (murders, imprisonment, assault, threats, etc.) or against the media (censorship, confiscation, searches and harassment etc.).

World Rank:
22/180
 

Indicator of Political Freedom

Definition:

The Indicator of Political Freedom provides an annual evaluation of the state of freedom in a country as experienced by individuals. The survey measures freedom according to two broad categories: political rights and civil liberties. The ratings process is based on a checklist of 10 political rights questions (on Electoral Process, Political Pluralism and Participation, Functioning of Government) and 15 civil liberties questions (on Freedom of Expression, Belief, Associational and Organizational Rights, Rule of Law, Personal Autonomy and Individual Rights). Scores are awarded to each of these questions on a scale of 0 to 4, where a score of 0 represents the smallest degree and 4 the greatest degree of rights or liberties present. The total score awarded to the political rights and civil liberties checklist determines the political rights and civil liberties rating. Each rating of 1 through 7, with 1 representing the highest and 7 the lowest level of freedom, corresponds to a range of total scores.

Ranking:
Free
Political Freedom:
1/7

Political freedom in the world (interactive map)
Source: Freedom in the World Report, Freedom House

 

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COVID-19 Country Response

Travel restrictions
Regularly updated travel information for all countries with regards to Covid-19 related entry regulations, flight bans, test and vaccines requirements is available on TravelDoc Infopage.
To find information about the current travel regulations, including health requirements, it is also advised to consult Travel Regulations Map provided and updated on a daily basis by IATA.
Import & export restrictions
A general overview of trade restrictions which were adopted by different countries during the COVID-19 pandemic is available on the International Trade Centre's COVID-19 Temporary Trade Measures webpage.
Economic recovery plan
The summary of the EU’s economic response to the COVID-19 pandemic is available on the website of the European Council.
For the general overview of the key economic policy responses to the COVID-19 outbreak (fiscal, monetary and macroeconomic) in Latvia, please consult the country's dedicated section in the IMF’s Policy Tracker platform.
Support plan for businesses
For an evaluation of impact of the Covid pandemic on SMEs and an inventory of country responses to foster SME resilience, refer to the OECD's SME Covid-19 Policy Responses document.
You can also consult the World Bank's Map of SME-Support Measures in Response to COVID-19.

 

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Latest Update: May 2024