Published: 16.04.2023.

Macroeconomic Review
April 2026

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Despite geopolitical uncertainty and the associated challenges, Latvia’s economy has successfully adapted to operating in a high-risk environment and is gradually returning to growth.

Russia’s invasion of Ukraine created significant challenges for economic development. In 2022, economic growth slowed markedly to 1.9%, driven by declining global demand, supply chain disruptions, and rising energy and food prices. In 2023, growth continued to be constrained by geopolitical uncertainty, high prices, and increasing interest rates, resulting in a GDP contraction of 0.9%. Although inflation stabilised, adverse external conditions meant that overall GDP in 2024 remained at the previous year’s level. In the first half of the year, the economy continued to decline; however, starting from the second half, GDP began to grow again.

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In 2025, GDP increased by 2.1%, confirming that Latvia’s economy has been able to overcome recent shocks. This growth was largely driven by a strong increase in investment, as well as government measures to stimulate the economy, particularly in lending and investment. Household consumption dynamics also improved in 2025.

Given the military conflict in the Middle East, the Ministry of Economics forecasts that economic growth in 2026 will be lower than previously projected. Higher energy prices and increased uncertainty are constraining both global and domestic economic activity, significantly raising production costs. The impact of the conflict on growth depends on its duration -  if the conflict were resolved within the coming months, Latvia’s economic growth could reach 2% in 2026. However, if the conflict lasts longer than half a year, the negative impact on growth could be significantly greater, substantially slowing development and creating additional challenges for businesses.

Further economic development in the medium term will depend on external conditions and the progress of reforms. The main risk to Latvia’s growth is linked to global economic developments, particularly the geopolitical situation. The future development of the EU economic area is also important. In the medium term, Latvia’s growth rate could potentially reach 4-5% annually. However, if the war in Ukraine persists, the pace of economic recovery may be slower.

Previous reviews and other publications on economic development can be found here ...