Latvia's gross domestic product (GDP) may grow by 1.9–3% next year, according to bank analysts surveyed by the LETA agency.
The economy is growing because it is growing
Luminor bank economist Peteris Straujinsh reported that in 2026, GDP is expected to grow by about 3%.
"A number of factors currently indicate that growth is more likely to accelerate than to slow down," he noted.
In particular, he pointed to a significant improvement in the performance of export sectors in 2025. This concerns a wide range of both goods and services — various sub-sectors of manufacturing, as well as service exports: tourism, business services, IT, aviation. Revenues from transit — railways and ports — continue to decline, but their share is too small to significantly affect the macroeconomic situation.
According to Straujinsh, favorable trends in exports may continue largely due to investments. An expansive fiscal and monetary policy, stimulating Latvia's main markets, also helps.
He noted that the forecast for the domestic market is also positive, and a process is gradually forming, which he ironically calls "the economy is growing because it is growing": growing consumer optimism, rising housing prices, and increased lending contribute to the growth of company turnover, which in turn stimulates wage growth and supports consumer sentiment. He stated that this is a self-sustaining process, although not eternal.
He also pointed to a favorable investment forecast, as the next two years represent the peak of the positive impact of EU funds.
"I expect that next year, the main sectors will show rather stable results — without bright stars, but also without failures. Exceptions may be areas dependent on natural conditions — like agriculture and forestry this year. It is likely that manufacturing and commercial services will grow faster than average, but I do not expect strong contrasts," Straujinsh noted.
The economy will continue to recover
Swedbank's chief economist Liva Zorgenfreya predicts that after more than two years of stagnation or even mild recession, 2025 will be a year of gradual growth, and Swedbank expects the economic recovery to continue in 2026 with GDP growth of 2.3%.
According to her, private consumer demand began to recover in the second half of 2025, and household spending is expected to continue supporting the economy. This is due to an increase in purchasing power. Wages will grow slightly slower than in 2025, but inflation will also decrease to 3%, and the labor market will remain stable, with the unemployment rate decreasing.
"Consumer sentiment has improved and already exceeds the long-term average. If there are no negative shocks, such as geopolitical ones, consumer optimism may persist, which gives hope for growth in retail, catering, and other consumption-oriented sectors," Zorgenfreya said.
She added that the period of sharp declines in the European Central Bank's interest rates is over, and no rate hikes are expected in 2026. Therefore, the important EURIBOR rate for borrowers is likely to remain at a level significantly lower than a year ago, which will contribute to the growth of lending, albeit more moderately than in 2025. This will support investments from both households and businesses.
The public sector, according to her, will also continue to support the economy in 2026: the budget deficit will increase, as will government spending and investments. Investments in defense, the construction of the Rail Baltica railway, as well as the implementation of Recovery Fund projects until the end of summer 2026 are planned, which will ensure growth in construction.
However, according to Zorgenfreya, one of the biggest uncertainties remains export opportunities. On the one hand, export orders are increasing, especially in manufacturing, and an acceleration of growth is expected in Latvia's partner countries. On the other hand, the effects of new tariffs on Latvia's and the EU's exports have not yet fully manifested, the level of uncertainty remains high, and risks related to global trade and geopolitics persist. Therefore, after strong growth in 2025, growth in manufacturing is likely to slow down.
The negative impact of the tariff shock turned out to be less than expected
Macroeconomic expert of SEB bankas Dainis Gashpuitis forecasts Latvia's GDP growth in 2026 at 1.9%, but does not rule out higher rates.
He noted that growth forecasts in the eurozone for 2026 have moderately improved, as the negative impact of the tariff shock turned out to be less than expected. However, its influence cannot be completely written off. Unpredictable policies of Donald Trump and the war in Ukraine also maintain uncertainty.
According to him, growth rates in the Baltic countries vary: in Lithuania, growth has been stronger than in Estonia and Latvia, thanks to higher domestic demand and service exports. However, the economies of Latvia and Estonia are recovering, and in 2026, growth rates between the Baltic countries should align.
Gashpuitis pointed out that data for the third quarter of 2025 confirmed signs of sustainable growth. The main driver has been the activation of the investment cycle, especially in construction. EU funds are actively flowing into the economy, lending volumes are increasing, indicating a return to risk appetite. Growth in exports, especially services, will also provide support. The recovery of manufacturing indicates moderate prospects for goods export growth. Importantly, private consumption has intensified in the second half of the year.
"Thanks to the increase in purchasing power and more stable confidence, private consumption will become an important growth factor in the next two years. However, the households' outlook on the future will be decisive, influencing consumer habits. The public sector will still provide additional stimulus to the economy," he noted.
Gashpuitis emphasized that external economic and geopolitical risks continue to restrain expectations. Although growth in 2025 is likely to exceed the forecast of 1.5% and may outpace the forecast for 2026 (1.9%), he is not in a hurry to adjust it.
"2026 promises to be more confident in terms of growth, and there is significant potential hidden in many sectors, waiting for suitable conditions to be realized. However, external uncertainty, especially in international trade and around Ukraine, as well as internal decisions — for example, regarding the dismantling of the railway towards Russia, tax policy, and others — will hinder the realization of this potential. The external environment will also determine the focus of the election campaign, including economic priorities that depend on the future development of the country," Gashpuitis said.
As previously reported, over the nine months of this year, Latvia's GDP grew by 1.7% compared to the corresponding period of 2024.
