Economy continues to contract in Q1

GDP still in the doldrums: GDP declined 0.3% year on year in the first quarter of 2025. That said, the figure came in above the 0.4% contraction tallied in the fourth quarter of last year and marked the best result since Q2 2024. On a seasonally adjusted quarter-on-quarter basis, GDP fell 0.1% in Q1 following the previous period's flat reading.

Private and public spending weigh on Q1 reading: On the domestic side, private consumption contracted 1.1% in Q1, marking the worst result since Q4 2023 and deteriorating from the prior quarter’s flat reading. Moreover, government consumption growth was the slowest since Q3 2022, coming in at 2.2% (Q4 2024: +6.1% yoy). More positively, fixed investment bounced back, growing 6.5% in Q1, contrasting the 9.1% contraction recorded in the prior quarter. On the external front, exports of goods and services growth sped up to 2.0% in Q1 (Q4 2024: +0.3% yoy). That said, imports of goods and services growth sped up to 7.8% in Q1 (Q4 2024: +0.5% yoy).

Panelist insight: EIU analysts commented on the outlook: “The economy is poised to return to growth in 2025, following a contraction of 0.4% in 2024. […] However, we have become less confident in the recovery in 2025, following the imposition of US import tariffs on EU goods. This will not only weaken US import demand but also leads to slower economic growth in the EU, making selling exports more difficult for outward-facing Latvian firms. The hit to sentiment will also result in slower investment growth.”

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