Economic Outline

Economic Indicators

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.

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