Latvia Economic Indicators

Latvia: A Resilient Economy Navigating Global Challenges

Latvia, a Baltic nation renowned for its resilience and adaptability, continues to navigate economic challenges while pursuing long-term growth through digital transformation and structural reforms. Its strategic location, highly skilled workforce, and strong emphasis on energy security have positioned it as a vital player in the European economic landscape. Despite facing inflationary pressures and geopolitical uncertainties, Latvia’s commitment to sustainability, innovation, and inclusive development offers a promising outlook.

Latvia’s Economic Outlook: Balancing Growth and Stability Amid Global Pressures

In 2023, Latvia faced significant economic headwinds, including high inflation, geopolitical tensions stemming from the Russian invasion of Ukraine, and global financial uncertainties. Despite these challenges, the country demonstrated resilience, leveraging its fiscal and structural policy measures.

Latvia’s real GDP growth contracted by 0.3% in 2023 due to tighter financial conditions and weak external demand. However, growth is expected to regain momentum, with projections of 1.7% in 2024 and 2.4% in 2025, driven by improved household purchasing power, higher public investment, and stronger external demand.

Economic Indicators and Projections

• Nominal GDP: Expected to reach €46.3 billion in 2024.
• Inflation: Headline inflation declined to 0.0% year-on-year in May 2024, compared to 0.9% in December 2023. Core inflation stood at 3.1% in April 2024, down from 4% in December 2023.
• Unemployment: The unemployment rate remained steady, supported by active labor market reforms and job creation programs.

Foreign Direct Investment (FDI): A Global Magnet

Latvia continues to enhance its attractiveness as a business and investment hub, driven by a strategic focus on fostering a business-friendly environment. In 2024, the Investment and Development Agency of Latvia (LIAA) attracted over €655 million in investments, up from just under €619 million in 2023. The agency aims to attract €1 billion in investments between 2023 and 2025, creating 7,500 new jobs.

Investment Results of 2024

Source: LIAA Attracts €655 Million in Investments in 2024

The Latvian government, through initiatives such as the LIAA, actively supports foreign investors by streamlining entry processes and offering incentives. This proactive stance has turned Latvia into a dynamic centre for innovation-driven businesses, particularly in areas such as fintech, smart manufacturing, and green technology.

Challenges and Opportunities

Despite its resilience, Latvia faces several challenges:

• Geopolitical Tensions: The ongoing war in Ukraine and related geopolitical tensions pose risks to economic stability and growth.
• Inflationary Pressures: While headline inflation has declined, core inflation remains elevated, driven by strong nominal wage growth amid tight labor markets.
• Structural Challenges: Productivity growth has lagged behind real wage increases, weighing on competitiveness.

Addressing these challenges presents opportunities for Latvia to implement structural reforms aimed at enhancing productivity, attracting investment, and overcoming skilled labor shortages.

Sources:

• IMF – Republic of Latvia 
• LIAA – More than 4M EUR invested into local startup ecosystem by Latvian government in 2023
• LIAA – Investor interest in Latvia has doubled over the past year
• LIAA – LIAA Attracts €655 Million in Investments in 2024