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Latvia Economic Forecast

Latvia Economic Outlook

A second release showed that annual GDP growth picked up slightly to 0.3% in Q4 from Q3’s 0.2%. Accelerations in both private and public spending drove the improvement. Less positively, investment posted a softer expansion, while export growth slowed significantly to its lowest rate since Q1 2021 on weaker European demand. In Q1, the economy is likely contracting at the steepest pace since the onset of Covid-19. In January, the slump in the industrial sector deepened from Q4’s average due to deteriorating manufacturing and mining output, with double-digit producer price inflation likely continuing to stifle activity. In the same month, retail sales growth slowed from the previous quarter, which, coupled with a higher unemployment rate, bodes ill for private spending. Moreover, exports growth continued to slow in January.

Latvia Inflation

Harmonized inflation eased to 20.1% in February from January’s 21.4% on softer price growth for food and transport. Our panel foresees the disinflationary trend continuing, with the headline rate set to nearly halve this year from 2022 on waning demand, weaker commodity prices and higher interest rates. However, inflation will remain well above the ECB’s 2.0% target.

Latvia Economic Data

2017 2018 2019 2020 2021
Population (million) 2.0 1.9 1.9 1.9 1.9
GDP (USD bn) 30.4 34.4 34.3 34.5 39.7
GDP per capita (USD) 15 17 17 18 20
GDP (EUR bn) 27.0 29.2 30.7 30.3 33.6
GDP per capita (EUR) 13 15 15 15 17
Economic Growth (Nominal GDP, ann. var. %) 6.4 8.0 5.2 -1.3 10.9
Economic Growth (GDP, ann. var. %) 3.3 4.0 2.6 -2.2 4.1
Domestic Demand (ann. var. %) 4.7 5.2 3.2 -2.1 10.3
Private Consumption (ann. var. %) 3.0 3.0 0.2 -4.6 8.1
Government Consumption (ann. var. %) 3.3 1.7 3.9 2.4 4.4
Fixed Investment (ann. var. %) 11.4 11.7 6.9 -2.6 2.9
Exports (G&S, ann. var. %) 6.4 4.4 2.1 -0.3 5.9
Imports (G&S, ann. var. %) 8.6 6.3 3.1 -0.3 15.3
Industrial Production (ann. var. %) 8.3 1.5 1.0 -1.4 6.6
Retail Sales (ann. var. %) 4.3 3.8 2.3 1.5 2.5
Wages (ann. var. %) 7.9 8.4 7.2 6.2 11.8
Unemployment (% of active population, aop) 8.7 7.4 6.3 8.1 7.5
Fiscal Balance (% of GDP) -0.8 -0.8 -0.6 -4.3 -7.0
Public Debt (% of GDP) 38.9 37.0 36.5 42.0 43.6
Money (ann. var. of M2 %) 3.2 13.8 8.0 13.1 7.9
Inflation (CPI, ann. var. %, eop) 2.2 2.5 2.3 -0.5 7.8
Inflation (HICP, ann. var. %, eop) 2.2 2.5 2.1 -0.5 7.9
Inflation (HICP, ann. var. %, aop) 2.9 2.6 2.7 0.1 3.2
Inflation (PPI, ann. var. %, aop) 2.6 4.5 1.9 -1.9 13.2
ECB Refinancing Rate (%, eop) 0.00 0.00 0.00 0.00 0.00
3-Month EURIBOR (%, eop) 0.30 0.04 0.03 -0.25 -0.30
10-Year Bond Yield (%, eop) 0.59 1.05 0.16 -0.29 0.30
Stock Market (var. of OMXR %) 35.8 -6.7 11.5 9.7 12.1
Exchange Rate (USD per EUR, eop) 1.20 1.14 1.12 1.22 1.14
Exchange Rate (USD per EUR, aop) 1.13 1.18 1.12 1.14 1.18
Current Account Balance (EUR bn) 0.3 0.0 -0.2 0.8 -1.4
Current Account Balance (% of GDP) 1.3 -0.1 -0.6 2.6 -4.2
Merchandise Trade Balance (EUR bn) -2.5 -2.5 -2.6 -1.6 -2.8
Merchandise Exports (EUR bn) 1.2 1.3 1.3 1.3 1.6
Merchandise Imports (EUR bn) 14.1 15.1 15.4 15.0 19.0
Merchandise Exports (ann. var. %) 10.8 8.3 1.4 5.3 20.5
Merchandise Imports (ann. var. %) 12.1 7.4 1.9 -2.6 26.5
Foreign Direct Investment (EUR bn) 0.6 0.8 0.8 0.8 4.7
External Debt (EUR bn) 38.1 35.9 35.8 36.8 36.8
External Debt (% of GDP) 141 123 117 121 110

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