Industrial production in Latvia grew by 4% last year compared to 2024, according to the CSB. In the coming year, Latvian manufacturers will face a number of challenges; however, the growth of industry is expected to continue, cautiously predict local economists.
We Don’t Care!
Agnesa Puke, economist at the Bank of Latvia:
– The growth of the manufacturing industry has continued for six consecutive quarters, although global uncertainty, primarily related to the activities of U.S. President Trump, continues to shake the global economy and politics.
We have become so accustomed to weak and fluctuating results that it is hard to believe in the current relatively stable growth.
This year in the world began with new emotions, conflicts, and "possible tariff scandals," the impact of which on global production indices has not yet been reflected; however, uncertainty in trade policy clearly increased in January.
Fortunately, the sentiment in the Latvian industry and the assessment of export orders are less susceptible to shocks — they are more influenced by events within the country or in geographically close regions, such as Russia's invasion of Ukraine, rather than international tariff wars. Overall, there has been an improvement in sentiment over the past two years.
Frost Comes to the Rescue
Peters Straujinsh, economist:
– In December of last year, compared to November, production decreased by 1.5%, and annual growth sharply slowed to 0.3%. This is the worst result since March. However, overall, the manufacturing industry grew by 5.5% in 2025.
The entire industry increased by 4%, as neither energy nor extraction benefited from favorable weather conditions, except for the "mild" winter at the beginning of the year and summer floods that contributed to electricity generation.
As for 2026, historically almost normal, but unusual weather conditions for the 21st century in January and early February will also affect production.
Frosts will have the greatest impact on woodworking. The cold helps forestry work, and the increase in energy consumption has already stimulated sales of pellets and briquettes. In the longer term, frost may help by "putting in place" some populations of harmful insects that have been shaking raw material markets and lowering prices for finished products.
Conversely, but to a lesser extent, there may be an impact on the food industry, which is primarily focused on the domestic market. Expensive electricity and high heating bills will affect purchasing power; however, food sales are less affected by such fluctuations.
Moreover, the increase in heating costs comes from a relatively low base: over the past 15 years, heating has become more expensive less than the consumer basket as a whole, and heat consumption at the beginning of winter was relatively small.
The dynamics of the two largest sectors — woodworking and the food industry — will stabilize this year in the zone of moderate annual growth of several percent. The driver of growth in the manufacturing industry will be sectors related to metal. Despite a sharp monthly decline in December (auto parts -15.1%, electrical engineering -8.6%), the annual dynamics remain very good: equipment production +47.9%, electronics +18%, auto parts +17%.
The peculiarity of the December data is also noteworthy: in the four largest sub-sectors, annual growth was recorded — woodworking +3.5%, food industry +8.6%, metalworking +7%, production of mineral products +11.9%.
In smaller engineering sectors, the results were good or excellent, except for textiles (-12.3%) and moderate declines in three other small and medium-sized industries.
This may indicate alarming processes in sectors not visible in the published data. But since most visible sectors are actively growing, and leading sentiment indicators are favorable, one can expect the manufacturing industry to return to higher annual rates in the coming months.
Yes, the emotional background of global news is currently bleak; however, the global economy as a whole is developing steadily, and the situation in Latvia's key export markets is improving. The investment boom in industry continues, so there is no reason to expect that the dynamics of 2026 will differ significantly from last year.
In the Negative-Neutral Zone
Karlis Purgailis, chief economist:
– After the decline of 2022–2023 and stagnation in 2024, last year was a turning point — a number of sectors returned to growth. At the same time, 2026 will be challenging: geopolitical uncertainty, a decline in the U.S. dollar, and rising wage expectations will take their toll.
Although in December the manufacturing industry decreased by 1.5%, the annual growth was 5.5%. The largest sectors showed positive results: wood and wood products +6.3%, food production +9.6%, finished metal products +4.6%. The most impressive growth in output was in non-metallic mineral products: +13.6%.
The extraction industry and quarrying are experiencing prolonged difficulties — in December, the annual decline was 15.4%, and the sector has not been able to recover volumes for several years.
Producer sentiment worsened by the end of the year but remains higher than in 2023–2024. Overall, they are in the negative-neutral zone; however, the situation is supported by more stable dynamics and strong sub-sectors.
The main challenge of 2026 will be rising costs, primarily due to wage increases. Energy resource prices are currently stable, so companies will have to find ways to reduce costs and increase productivity.
Currency dynamics are also important. A weaker dollar benefits raw material importers, but exporters to the U.S. will receive less in euros. Due to high competition, it is difficult to raise prices, which may reduce business profitability.
Geopolitical risks remain, including possible U.S. tariffs on European goods. This will affect not only direct exporters to the U.S. but also component suppliers to countries subject to tariffs, which may reduce exports.
Despite the risks, the overall outlook for the beginning of the year is cautiously positive. We have seen that the industry can grow even in difficult conditions… 2025 was a year of growth after several challenging years.
