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Economic and political overview

Economic Overview

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 2024 (E)2025 (E)2026 (E)2027 (E)2028 (E)
GDP (billions USD) 43.5145.5448.3550.8953.45
GDP (Constant Prices, Annual % Change) -0.42.02.52.52.5
GDP per Capita (USD) 23,24324,37425,93527,35028,781
General Government Balance (in % of GDP) -2.0-2.9-2.9-3.0-2.9
General Government Gross Debt (in % of GDP) 47.448.348.348.548.6
Inflation Rate (%) 1.32.42.42.62.2
Unemployment Rate (% of the Labour Force) 6.96.76.66.66.5
Current Account (billions USD) -0.92-1.15-1.18-1.25-1.26
Current Account (in % of GDP) -2.1-2.5-2.4-2.4-2.4

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

Country Risk

See the country risk analysis provided by La Coface.

 

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Main Sectors of Industry

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) 4.1 19.9 63.1
Value Added (Annual % Change) 3.7 -4.0 0.2

Source: World Bank - Latest available data.

 
Monetary Indicators 20202021202220232024
Euro (EUR) - Average Annual Exchange Rate For 1 USD 0.880.850.950.920.92

Source: World Bank - Latest available data.

 

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Foreign Trade

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 Values 20202021202220232024
Imports of Goods (million USD) 18,44124,44629,50127,38023,706
Exports of Goods (million USD) 16,33720,83324,10022,65020,473
Imports of Services (million USD) 3,2794,2475,1405,7325,890
Exports of Services (million USD) 5,5106,2867,6028,0858,330

Source: World Trade Organisation (WTO) ; Latest available data

Foreign Trade Indicators 20202021202220232024
Foreign Trade (in % of GDP) 123.9136.8159.8136.6131.8
Trade Balance (million USD) -1,769-3,277-4,312-3,948-3,565
Trade Balance (Including Service) (million USD) 487-1,219-1,841-1,581-1,116
Imports of Goods and Services (Annual % Change) -1.115.19.9-2.0-2.3
Exports of Goods and Services (Annual % Change) -0.39.111.4-4.7-1.6
Imports of Goods and Services (in % of GDP) 61.270.082.470.267.2
Exports of Goods and Services (in % of GDP) 62.766.877.566.564.6

Source: World Bank ; Latest available data

Foreign Trade Forecasts 2025 (e)2026 (e)2027 (e)2028 (e)2029 (e)
Volume of exports of goods and services (Annual % change) 2.42.62.62.62.6
Volume of imports of goods and services (Annual % change) 3.43.02.72.72.7

Source: IMF, World Economic Outlook ; Latest available data

Note: (e) Estimated Data

 
International Economic Cooperation
Latvia is a member of the United Nations, the Council of Europe, the Organization for Security and Cooperation in Europe, the World Trade Organization, the Council of the Baltic Sea States and the European Bank for Reconstruction and Development. It has contributed to NATO peacekeeping missions and is taking part at the present time in the international missions to Afghanistan and Irak.
 

Main Partner Countries

Main Customers
(% of Exports)		 2023
Lithuania 18.0%
Estonia 11.5%
Germany 6.6%
Sweden 6.0%
United Kingdom 4.7%
See More Countries 53.2%
Main Suppliers
(% of Imports)		 2023
Lithuania 21.7%
Germany 11.5%
Poland 10.9%
Estonia 8.6%
Finland 4.7%
See More Countries 42.6%

Source: Comtrade, Latest Available Data

 

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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 (ST!): 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.
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 serves as the commander-in-chief of the armed forces. He appoints the Prime Minister as head of government, who must then receive a vote of confidence from the parliament to take office. The Prime Minister holds executive powers, which include the implementation of the law and overseeing the day-to-day affairs of the government. The term of the Prime Minister depends on the parliamentary term and the government's stability. The Council of Ministers is nominated by the Prime Minister and appointed by the parliament.
Legislative Power
Latvia has a unicameral legislature. The Parliament, known as the Saeima, consists of 100 seats, and its members are elected through direct popular vote for four-year terms.

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.

 

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