In this page: Economic Indicators | Foreign Trade in Figures | Sources of General Economic Information | Political Outline | COVID-19 Country Response
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 | 2022 | 2023 (E) | 2024 (E) | 2025 (E) | 2026 (E) |
---|---|---|---|---|---|
GDP (billions USD) | 40.45 | 43.60 | 45.47 | 48.27 | 50.75 |
GDP (Constant Prices, Annual % Change) | 3.0 | -0.3 | 1.7 | 2.4 | 2.5 |
GDP per Capita (USD) | 21,567 | 23,153 | 24,194 | 25,739 | 27,113 |
General Government Balance (in % of GDP) | -5.3 | -2.0 | -2.4 | -2.2 | -1.7 |
General Government Gross Debt (in % of GDP) | 41.5 | 43.5 | 43.2 | 42.9 | 42.6 |
Inflation Rate (%) | 17.2 | 9.1 | 2.0 | 3.6 | 2.2 |
Unemployment Rate (% of the Labour Force) | 6.9 | 6.5 | 6.5 | 6.5 | 6.4 |
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
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 | 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 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 | 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) | 3.1 | -0.3 | 15.3 | 11.7 | n/a |
Exports of Goods and Services (Annual % Change) | 2.1 | -0.3 | 5.9 | 9.1 | n/a |
Imports of Goods and Services (in % of GDP) | 60.5 | 58.9 | 67.1 | 76.2 | n/a |
Exports of Goods and Services (in % of GDP) | 59.8 | 59.9 | 63.7 | 70.3 | n/a |
Trade Balance (million USD) | -2,952 | -1,758 | -3,267 | -4,282 | n/a |
Trade Balance (Including Service) (million USD) | -230 | 453 | -1,253 | -1,838 | n/a |
Foreign Trade (in % of GDP) | 120.3 | 118.8 | 130.8 | 146.5 | n/a |
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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7.3 bn USD of services exported in 2022 | |
---|---|
32.41% | |
26.25% | |
Miscellaneous business,...Miscellaneous business, professional, and technical services | 25.40% |
Research and developmentResearch and development | 0.88% |
17.82% | |
14.94% | |
4.70% | |
2.41% | |
0.65% | |
0.46% | |
0.25% | |
0.12% |
4.9 bn USD of services imported in 2022 | |
---|---|
36.00% | |
Miscellaneous business,...Miscellaneous business, professional, and technical services | 35.79% |
Research and developmentResearch and development | 0.22% |
26.81% | |
20.53% | |
10.24% | |
2.13% | |
1.72% | |
1.23% | |
0.80% | |
0.34% | |
0.19% |
Source: United Nations Statistics Division, Latest Available Data
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.
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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Latest Update: May 2024