Latvia: Economic and Political Overview
In this page: Economic Indicators | Foreign Trade in Figures | Sources of General Economic Information | Political Outline
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. After post-pandemic recovery, Latvia's economy contracted by 0.3% in 2023 due to tighter financial conditions and weak external demand. Real GDP expanded by an estimated 1.7% in 2024 and is projected to gain pace in 2025 (to 2.4%), driven by rising private consumption, public investment, and stronger external demand. Medium-term growth is projected to average 2.5%, supported by investment and reforms (IMF). Investment is expected to rebound in 2025, driven by EU fund inflows and improved financial conditions.
Latvia's macroeconomic indicators are generally positive, as the country pursues tax and labour reforms in accordance with its stability program. The Ministry of Finance reported that Latvia's general government deficit in 2024 was EUR 849.6 million or 2.1% of GDP. According to the Treasury’s operational assessment, general government debt stood at EUR 19 billion or 47.7% of GDP at the end of 2024, an increase of EUR 1.5 billion over the year. The Ministry of Finance attributed this to borrowing measures taken in the previous year to meet financing needs, including covering the budget deficit and public debt obligations. In 2025, the government deficit is expected to rise to 3.2% of GDP, driven by lower tax revenues from labour tax reform, reduced income from state-owned energy and forestry companies, and declining corporate tax payments from the financial sector. The deficit is projected to remain at 3.2% in 2026 due to continued declines in property income, the impact of tax reforms, and moderate growth in government spending. The debt-to-GDP ratio is projected to rise to 50.3% in 2025 and 51.6% in 2026 due to budget deficits and positive stock-flow adjustment (EU Commission). Latvia's annual inflation averaged 1.3% last year, from 9.1% in 2023, thanks to a fast decrease in energy prices (CSB). As energy price base effects diminish, inflation is expected to be 2.2% in both 2025 and 2026 (EU Commission).
In 2024, Latvia's unemployment rate was 6.9%, with 65.3 thousand unemployed people aged 15–74, up by 3.8 thousand (6.2%) from 2023. Unemployment was lower for women (5.8%) than men (8.0%). Youth unemployment stood at 13.6%, the lowest among the Baltic countries for the second year in a row. According to the EU Commission, unemployment should decrease slightly over the forecast horizon due to higher labour demand, while nominal wages are expected to grow by 4% in 2025 and 3.5% in 2026 due to labour market tightness. Latvia has to face a strong emigration of skilled youth and the country has one of the lowest population growth rates in the EU (-0.1% in 2023 - World Bank, latest data available), with birth numbers declining continuously. The latest data published by the Central Statistical Bureau (CSB) show that 21.6% of the country’s population is at risk of poverty. The GDP per capita (PPP) was estimated at USD 43,526 in 2024 by the IMF.
| Main Indicators | 2023 (E) | 2024 (E) | 2025 (E) | 2026 (E) | 2027 (E) |
|---|---|---|---|---|---|
| GDP (billions USD) | 43.64 | 45.52 | 48.16 | 50.92 | 53.49 |
| GDP (Constant Prices, Annual % Change) | -0.3 | 1.2 | 2.3 | 2.5 | 2.5 |
| GDP per Capita (USD) | 23,176 | 24,223 | 25,681 | 27,203 | 28,632 |
| General Government Balance (in % of GDP) | -2.3 | -2.6 | -2.6 | -2.6 | -2.7 |
| General Government Gross Debt (in % of GDP) | 43.6 | 45.2 | 45.7 | 46.0 | 46.3 |
| Inflation Rate (%) | 9.1 | 1.4 | 2.2 | 2.2 | 2.2 |
| Unemployment Rate (% of the Labour Force) | 6.5 | 6.7 | 6.5 | 6.4 | 6.4 |
| Current Account (billions USD) | -1.75 | -1.71 | -1.76 | -1.76 | -1.78 |
| Current Account (in % of GDP) | -4.0 | -3.8 | -3.6 | -3.5 | -3.3 |
Source: IMF – World Economic Outlook Database , Latest available data
Note: (e) Estimated Data
The agricultural sector contributes 3.8% of GDP and employs 6.8% 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 favour 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 2024, Latvia harvested 3.2 million tonnes of grain, 436.4 thousand tonnes (16.1%) more than in 2023. The average cereal yield reached 39.4 quintals per hectare, up 15.5% from the previous year. Winter cereal production increased by 321.4 thousand tonnes (15.3%), totalling 2.4 million tonnes. The value added of the agricultural sector increased by 2.8% y-o-y.
The industrial sector contributes 22.3% of GDP and employs a similar share of the active workforce (22.9%). 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 11% of the total GDP. Data published by the CSB show that, in 2024, industrial production decreased by 2.3%. Manufacturing output fell by 2.6%, and electricity and gas supply dropped by 2.7%. However, mining and quarrying saw an increase of 16.6%.
The Latvian economy is driven by the services sector which contributes 61.6% of GDP and employs 70.3% 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 13 banks, including 9 credit institutions registered in Latvia, and four branches of European institutions (European Banking Federation). In 2024, the value added of services increased by 0.4% y-o-y (CSB). Retail trade rose by 0.9%, with non-food products up 2.3%, while food sales fell 1.7%. Wholesale trade and motor vehicle repair grew by 3.8%. Transport and storage declined by 7.9%, except for air transport, which increased by 14.0%. Accommodation services rose by 1.3%, with accommodation up 6.7%, but catering dropped 1.2%. The information and communication sector fell 1.3%, mainly due to declines in computer programming and telecommunications. However, information services grew by 5.0%. Financial and insurance activities grew by 3.1% (CSB).
| Breakdown of Economic Activity By Sector | Agriculture | Industry | Services |
|---|---|---|---|
| Employment By Sector (in % of Total Employment) | 6.8 | 22.9 | 70.3 |
| Value Added (in % of GDP) | 3.8 | 22.3 | 61.6 |
| Value Added (Annual % Change) | -8.1 | 5.1 | 2.2 |
Source: World Bank - Latest available data.
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| Monetary Indicators | 2016 | 2017 | 2018 | 2019 | 2020 |
|---|---|---|---|---|---|
| Euro (EUR) - Average Annual Exchange Rate For 1 MUR | 0.03 | 0.03 | 0.02 | 0.03 | 0.02 |
Source: World Bank - Latest available data.
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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.
Economic freedom in the world (interactive map)
Source: Index of Economic Freedom, Heritage Foundation
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.
Source: The Economist Intelligence Unit - Business Environment Rankings 2020-2024
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The Latvian market is open and competitive, with foreign trade representing 138% 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 3.7% of GDP in 2023 (World Bank, latest data available). According to 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 2023. Imports totalled EUR 23.2 billion, marking a decrease of 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 the previous year. Provisional data from the CSB show that in 2024, Latvia exported goods worth EUR 18.68 billion, a decrease of EUR 365.5 million or 1.9% from 2023. Imports totalled EUR 21.68 billion, down EUR 1.73 billion or 7.4%. Latvia's foreign trade turnover reached EUR 40.36 billion, a decrease of EUR 2.09 billion or 4.9% compared to 2023.
| Foreign Trade Indicators | 2019 | 2020 | 2021 | 2022 | 2023 |
|---|---|---|---|---|---|
| Imports of Goods (million USD) | 18,959 | 18,441 | 24,446 | 29,501 | 27,114 |
| Exports of Goods (million USD) | 15,705 | 16,337 | 20,833 | 24,100 | 22,446 |
| Imports of Services (million USD) | 3,529 | 3,323 | 4,272 | 5,144 | 5,766 |
| Exports of Services (million USD) | 6,257 | 5,536 | 6,286 | 7,587 | 8,127 |
| Imports of Goods and Services (Annual % Change) | 2.0 | -1.1 | 15.1 | 9.9 | -2.0 |
| Exports of Goods and Services (Annual % Change) | -0.6 | -0.3 | 9.1 | 11.4 | -4.7 |
| Imports of Goods and Services (in % of GDP) | 62.8 | 61.2 | 70.0 | 82.4 | 70.7 |
| Exports of Goods and Services (in % of GDP) | 62.5 | 62.7 | 66.8 | 77.5 | 67.0 |
| Trade Balance (million USD) | -2,933 | -1,769 | -3,277 | -4,312 | -3,948 |
| Trade Balance (Including Service) (million USD) | -71 | 487 | -1,219 | -1,841 | -1,581 |
| Foreign Trade (in % of GDP) | 125.3 | 123.9 | 136.8 | 159.8 | 137.7 |
Source: WTO – World Trade Organisation ; World Bank , Latest Available Data
| 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
Source: Comtrade, Latest Available Data
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| 8.0 bn USD of services exported in 2023 | |
|---|---|
| 32.22% | |
| 26.61% | |
| Miscellaneous business,...Miscellaneous business, professional, and technical services | 26.32% |
| Research and developmentResearch and development | 0.28% |
| 17.10% | |
| 16.41% | |
| 4.83% | |
| 1.49% | |
| 0.73% | |
| 0.42% | |
| 0.12% | |
| 0.08% | |
| 5.6 bn USD of services imported in 2023 | |
|---|---|
| 34.67% | |
| Miscellaneous business,...Miscellaneous business, professional, and technical services | 34.47% |
| Research and developmentResearch and development | 0.19% |
| 26.02% | |
| 22.13% | |
| 10.10% | |
| 2.33% | |
| 2.00% | |
| 1.38% | |
| 0.80% | |
| 0.41% | |
| 0.16% | |
Source: United Nations Statistics Division, Latest Available Data
The executive branch depends directly or indirectly on the support of the parliament, often shown through a vote of confidence. Legislative power is shared between the government and the parliament. The government does not have the authority to dissolve the parliament. The people of Latvia enjoy significant political rights.
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.).
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.
Political freedom in the world (interactive map)
Source: Freedom in the World Report, Freedom House
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