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Economy and Finance

Economic forecast for Latvia

The latest macroeconomic forecast for Latvia. 

Economic growth picked up significantly at the start of 2022, driven by private consumption and exports. The boost to private consumption from the delayed recovery from the COVID-19 induced-slump is expected to last another quarter or two, but is set to fade by the end of the year as inflation’s impact on disposable incomes begins to show. On the positive side, rising commodity prices are expected to benefit Latvian exports of wood products, compensating somewhat the negative effects stemming from the economic fallout of Russia’s invasion of Ukraine. Investment growth is set to continue benefiting from high inflows of EU funds, but its real growth will be dampened by the impact of surging prices. Altogether, GDP growth is expected to reach 3.9% in 2022, which is significantly higher than expected in spring due to the very strong growth in the first quarter of 2022.

Last update : Summer 2022 Economic Forecast (14/07/2022)

GDP growth (%, yoy)-3,84,53,92,2
Inflation (%, yoy)0,13,215,56,0

Rapidly rising inflation is expected to suppress real disposable income and surging fuel import prices are expected to deteriorate the terms of trade. These factors are set to begin to weigh on growth at around the turn of the year, impacting both private consumption and investment. Slowing inflation in the second half of 2023 is expected to push growth up a little bit towards the end of the year. All in all, GDP growth is projected to slow down to 2.2% in 2023.

Consumer price inflation is forecast to reach 15.1% in 2022, driven by surging energy prices and their knock-on effects on other consumer price components. While the impact of the energy price surge has so far been limited by government support measures, their phasing out, together with a second round of upward revisions of regulated prices, are set to significantly increase inflation in the course of 2022. In 2023, the expected decline in energy prices is set to progressively dampen inflation, but knock-on effects on non-energy prices and wages are set to keep consumer price inflation elevated for the year as a whole.