Report on the Economic Development of Latvia
The regular Report on the Economic Development of Latvia prepared by the specialists from the Ministry of Economics is now available for your evaluation. The first Report was published in September 1994 and the following Reports since 1995 were published traditionally twice a year – in June and December. The present Report, just like the previous ones, provides an assessment of the country’s economic situation and policy, as well as gives forecasts for development perspectives of the economy.
From 2005 to 2007, a huge inflow of foreign capital stimulated a significant growth of private consumption and investment in Latvia. The average annual growth rate of GDP exceeded 10%. In 2008 and 2009, recession set in as the inflow of foreign capital stopped due to the global financial crisis. During the crisis, GDP fell by ¼, external debt almost doubled, the number of the employed decreased by 16%, while the real wages of the employed fell by 12 per cent.
As of the end of 2010, the recession stopped in Latvia, and growth has resumed. From 2011 to 2013, the GDP grew by 4.4% per year on average. In 2014, GDP grew by 2.4%, while in 2015 – by 2.7%. The slowdown of growth in the last two years was determined by the trends in the external environment – slower growth in the EU than expected, as well as weakening of the economic situation in Russia. Even though the economy of Latvia has been growing in recent years, GDP is still by almost 5% lower than before the crisis in 2007.
In Q1 2016, the GDP grew by 2.1% compared to the corresponding period of the year before. This year investment volumes dropped significantly in Q1, mainly as the acquisition of the EU structural funds slowed down. A gradual drop in export volumes for four quarters in a row should be mentioned as a negative factor. In 2016, similarly to the previous year, growth rates will mainly be driven by the development of the internal demand. It will be facilitated by wage growth and unemployment reduction. Investments are important for further development of economy. The dynamics of private investments is very moderate, while public sector investments are tightly linked to the cyclic nature of acquisition of the EU structural funds in the programming period.
If there are no new, significant shocks in the external environment, then we will most probably see faster GDP growth in the second half of this year and in 2017. Currently available forecasts on growth of external trade partner countries and the EU funds acquisition cycle plan evidence of that. Therefore, the slack in the Latvian national economic growth in Q1 most likely is of a short-term nature. The experts of the Ministry of Economics forecast that, in total, the GDP growth rate might be within 2.8% in 2016.
Previous reports and other publications on economic development can be found here ...