Latvia's gross domestic product (GDP) is likely to grow faster this year than previously forecasted, according to bank economists.
In the first nine months of this year, Latvia's gross domestic product (GDP) grew by 1.7%, including a 2.5% increase in the third quarter compared to the same period last year, according to data from the Central Statistical Bureau (CSB).
Where did this unexpected growth in Latvia's economy come from? Local economists explain.
Agnese Puke, economist at the Bank of Latvia:
– Various operational data — including retail trade figures, industrial production, sentiment indices, payment card data, and lending — had previously indicated that GDP changes in the third quarter would be positive, although the extent of growth was unclear. Investors noticeably increased their activity at the beginning of the year and plan to continue investments in the coming years.
In recent months, new plans for large private investments have emerged. For example, the leading German defense industry company Rheinmetall AG will begin construction of a munitions factory in spring 2026, with an investment volume of €275 million. Additionally, Danish wind energy developer Eurowind Energy, in collaboration with German Neue Energien, plans to build five wind farms by 2032 with a total investment of €600 million. In Valmiera, construction is underway for the biorefinery Fibenol, costing up to €700 million. State investments are also increasing — the implementation of EU fund projects and investments in the Rail Baltica project.
All these projects indicate that investments will become one of the main drivers of the economy in the coming years.
Liva Sorgenfreya, chief economist at Swedbank:
– Latvia's economy is recovering, and this is reflected in the GDP data. The fastest quarterly growth rate since the pandemic has been recorded.
Revised data shows that household consumption has been gradually increasing since the end of last year, and in the third quarter, spending rose again. Growth in spending is also observed in consumption-related sectors — retail trade, catering, and entertainment.
The average size of deposits for clients receiving salaries in bank accounts is gradually increasing: if in 2023 the median deposit was just over €500, it is now around €750. Salaries will continue to grow faster than inflation, and consumer sentiment is already above the long-term average, so further growth in household spending can be anticipated. Data for October also shows significant growth in retail trade.
After the introduction of Trump tariffs, exports of Latvian goods to the U.S. decreased by 13% in the third quarter compared to last year. The impact of trade restrictions on Latvia's export opportunities is likely to be noticeable in the future as well. However, in the third quarter, despite high uncertainty in global trade, the total export volume increased.
Most of the investment growth is related to construction. Government investments are forming an increasing share of GDP. However, investments in housing have also risen, likely due to high activity in the real estate market. When adjusting the volume of transactions for population size, it is evident that the Riga apartment market is currently the most active among the Baltic capitals.
We are currently experiencing complex and uncertain times. However, it is positive that businesses and residents are gradually becoming more optimistic.
Dainis Gashpuitis, chief economist at SEB bank:
– The main driver of the economy is the activation of the investment cycle. In the third quarter, investments grew by 10.8%, which is reflected in construction growth (+9%). Export (+3%) also provides support, with both service exports (+3.2%) and goods exports (+2.8%) increasing. Government spending (+5.8%) also gives an additional stimulus to the economy.
The continuation of growth momentum in the last quarter of the year and next year is evidenced by the October retail trade growth of 4.8%, which has not been seen for a long time. The revival of consumption provides the greatest potential for accelerating growth.
However, the decisive factor will be household confidence. Perceptions of external events and inflation will significantly influence their assessment of the future and, accordingly, their spending patterns.
This year is likely to end with growth above the current forecast of 1.5%. At the same time, it is still too early to adjust the forecast for next year (1.9%). Although next year looks more confident, the growth potential is still limited by uncertainties regarding developments, for example, in international trade and in Ukraine, as well as decisions within the country — for instance, regarding the dismantling of railway tracks towards Russia.
