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Economic Overview

For the latest updates on the key economic responses from governments to address the economic impact of the COVID-19 pandemic, please consult the IMF's policy tracking platform Policy Responses to COVID-19.

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. The growth rate has been positive since 2011 and was among the highest in the EU countries before the outbreak of the COVID-19 pandemic. According to the IMF estimates, real GDP grew 2.5% in 2022 (1.8% as per the EU Commission) underpinned by strong growth in private consumption. Given the carry-over effect of the decline in activity in the second half of the year, growth is expected to remain lacklustre in 2023, with the EU Commission expecting a 0.1% growth rate over the year, followed by an uptick in 2024 (+2.7%).

Latvia's macroeconomic indicators are generally positive, as the country pursues tax and labour reforms in accordance with its stability programme. In 2022, the budget deficit was estimated at 6.1% of GDP by the IMF as the government energy support measures cost EUR 445 million. No funds have so far been allocated for the heating season 2023/2024, while the one-off investments linked to national security should amount to 0.8% of GDP: overall, the IMF expects the budget deficit to shrink to 2.2% of GDP this year and 1.5% in 2024, as the government plans to reduce the structural deficit to 0.5% of GDP by 2025. The government debt-to-GDP ratio increased marginally to 46% in 2022 but is expected to follow a downward trend over the forecast horizon, reaching 43.7% by 2024. The government's interest payments will increase to 2.2% of revenue in 2023-24, from 1.3% of revenue in 2021 (Fitch Ratings). Driven by rapid energy price increases, inflation reached the record level of 16.5% in 2022 and is forecast to remain in double digits through most of the first semester of 2023, before easing gradually to an annual average of 8% and returning closer to the ECB’s target the following year (2.9%).

The unemployment rate stood at 7.4% in 2022. In 2023, the effects of inflation will cause negative real wage growth, and low consumer sentiment will likely shrink household consumption. Overall, the IMF forecasts an unemployment rate of 7.2%. Latvia has to face a strong emigration of skilled youth and the country has one of the lowest population growth rates in the EU (-0.8% in 2021 - 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 are at risk of poverty. The GDP per capita (PPP) was estimated at USD 38,124 in 2022 by the IMF.

 
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 , October 2021

Country Risk

See the country risk analysis provided by La Coface.

 

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Main Sectors of Industry

The agricultural sector contributes 4.1% 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 favour of household farms and – to a greater extent - of private farms, which currently dominate the country’s rural sector. At the end of 2021, there were 62.3 thousand agricultural holdings (-14.7% y-o-y), with an average size of 44.3 ha. In 2021, the harvested production of grain accounted for 3 million tonnes, which was 14.4% less than one year earlier (CBS - latest data available).

The industrial sector contributes 19.9% of the GDP and employs almost one-fourth of the active workforce (21%). 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 12% of the total GDP. Data published by the Central Statistical Bureau of Latvia (CSB) show that in 2022 industrial production output increased by 0.8% year-on-year. Output in manufacturing rose by 2.6 %, mining and quarrying dropped by 0.7 %, and electricity and gas supply fell by 11.5%. In fact, 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 63.7% of GDP and employs 69% 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 around 7.3% 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). Finally, in 2022 the number of foreign and resident visitors in Latvia reached 2.2 million, which is 66.2% more than the previous year, but still 23.9% lower than before the pandemic.

 
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.

 
Monetary Indicators 20162017201820192020
Euro (EUR) - Average Annual Exchange Rate For 1 USD 0.940.890.850.890.88

Source: World Bank - Latest available data.

 

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Foreign Trade

The Latvian market is open and competitive, with foreign trade representing 130% of GDP (World Bank, latest data available). According to the Central Statistical Bureau of Latvia, in 2022 exports were comprised mostly of wood, wood products and charcoal; mineral fuels, mineral oils and products of their distillation; electrical machinery and equipment. Imports were led by mineral fuels, mineral oils and products of their distillation; electrical machinery and equipment; machinery and mechanical appliances.

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. As a result, the volume of trade with Russia now accounts for less than 10% of the total while the EU has the lion's share with nearly 45.3% of total exports and an even larger share of imports. In the meantime, the country is also seeking new opportunities beyond Europe, with China and several countries in Central Asia. For 2022, the main partner countries were Sweden (EUR 956.5 million, 4.5%), Lithuania (EUR 933 million, 4.3%) and Germany (EUR 893.4 million, 4.2%); whereas imports came chiefly from Lithuania, Estonia, Germany, Poland, and the Russian Federation (their cumulated share comprised 60.3% of total imports).

The country has a structural trade deficit (notably due to its energy imports), which stood at 3.4% of GDP in 2021 (World Bank). In the same year, Latvia exported USD 20.8 billion worth of goods, importing USD 24.4 billion (+28.5% and +33.1% year-on-year, respectively). Trade in services recorded a surplus, with exports standing at USD 5.7 billion (+14.2% y-o-y) against USD 3.6 billion in imports (+23.2%). Preliminary figures from the National Statistical Office show that in 2022 Latvia exported EUR 21.27 billion worth of goods, importing EUR 26.5 billion (+29.3% and 35.8%). Both are the highest exports and imports value yet recorded, which can be explained by the rise in prices.

 
Foreign Trade Values 20182019202020212022
Imports of Goods (million USD) 19,68118,95918,44124,44629,497
Exports of Goods (million USD) 16,16615,70516,33720,83324,121
Imports of Services (million USD) 3,5703,5293,2684,2265,050
Exports of Services (million USD) 6,2946,2575,3756,1427,371

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

Foreign Trade Indicators 20182019202020212022
Foreign Trade (in % of GDP) 123.6120.3118.8130.8146.5
Trade Balance (million USD) -2,944-2,952-1,758-3,267-4,282
Trade Balance (Including Service) (million USD) -230-230453-1,253-1,838
Imports of Goods and Services (Annual % Change) 6.33.1-0.315.311.7
Exports of Goods and Services (Annual % Change) 4.42.1-0.35.99.1
Imports of Goods and Services (in % of GDP) 62.160.558.967.176.2
Exports of Goods and Services (in % of GDP) 61.559.859.963.770.3

Source: World Bank ; Latest available data

Foreign Trade Forecasts 20232024 (e)2025 (e)2026 (e)2027 (e)
Volume of exports of goods and services (Annual % change) -0.23.02.62.62.6
Volume of imports of goods and services (Annual % change) -0.53.02.52.52.5

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)
2022
Lithuania 18.2%
Estonia 11.7%
Germany 6.7%
Sweden 5.6%
United Kingdom 5.3%
See More Countries 52.5%
Main Suppliers
(% of Imports)
2022
Lithuania 24.3%
Estonia 10.1%
Germany 9.6%
Poland 9.4%
Netherlands 4.0%
See More Countries 42.6%

Source: Comtrade, Latest Available Data

 

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Political Outline

Current Political Leaders
President: Egils LEVITS (since 8 July 2019)
Prime Minister: Krisjanis KARINS (since 23 January 2019)
Next Election Dates
Presidential: 2023
Parliamentary: 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.
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.

 

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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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