The Latvian Central Bank (Bank of Latvia) published its latest macroeconomic forecasts December 13. In 2024, Latvia is expecting weak gross domestic product (GDP) growth of 0.1% and low inflation of 1.3%.
In October, the Bank of Latvia revised down its GDP growth forecast for this year, estimating that the Latvian economy will grow by 0.6% this year, compared to 1.8% in June.
Inflation data are in line with the Bank of Latvia’s October forecast, and the forecast for 2024 remains at 1.3%.
Inflation is forecast to be below 2% in the next two years (1.4% in 2025 and 1.5% in 2026), and could reach 2.1% in 2027. Global energy and food prices are expected to be slightly higher in the medium term. Inflationary factors include government decisions to increase excise duties, and phasing in a national ETS2 scheme for fuel and gas. However, price increases will be tempered by more subdued wage increases.
The labor market remains resilient, but wage growth is expected to slow. Wage growth is projected to be somewhat slower due to more subdued economic growth. In 2025, it will also be affected by the constraint on the growth of the public wage bill. However, people’s purchasing power will strengthen as wages grow faster than inflation.
A period of weak activity in the Latvian economy will be replaced by stronger growth in 2025.
The downward revision of GDP growth, with only a modest 0.1% projected for this year, is mainly driven by the weak development so far, without a significant change in the outlook for the future.
The situation could improve in the coming years as domestic demand strengthens, supported by stronger export growth. GDP is thus expected to grow by 2.1% in 2025, 3.0% in 2026 and 3.3% in 2027.
In the short term, export growth is expected to be weak, driven by contracting external demand. This is compounded by concerns about the competitiveness of Latvian companies.
However, a recovery in demand is expected in the medium term, boosted by less tight monetary policy and still expansionary fiscal policy. Meanwhile, challenges in the German economy, the US election results and possible protectionist policies, as well as growing instability in the EU’s neighboring regions, have increased global uncertainty.
