The Economy of Latvia Has Fallen to the Level of Bulgaria. Authorities Dream of the Level of Lithuania

The currently active National Development Plan in the country will end in 2027, and the Strategy for the Long-Term Development of Latvia will end in 2030. Recently, the sectoral ministries completed the coordination of the interim assessment of the national economy's performance prepared by the State Chancellery.

The Baltic Brake

The gross domestic product per capita in purchasing power parity has shown a steady growth trend in recent years, except for a slight decline in 2020, which was the first year of the COVID-19 pandemic that had a significant impact on economic activity. Especially rapidly, the value of this indicator has increased in recent years, and the goal included in Latvia's long-term development strategy to reach a GDP per capita of €27,000 (in purchasing power parity) was achieved as early as 2024.

What is disappointing is that neighbors are growing faster. The growth level of the Latvian economy compared to the GDP per capita with the average of EU countries based on the latest available statistics is 68.4%, while Estonia's figure is 79%, and Lithuania's figure is 87.5%.

"Despite the fact that Estonia's figure has even decreased over the last four years, Latvia still significantly lags behind both of its neighboring countries, so it is necessary to revise the state's economic policy, placing maximum emphasis on increasing the productivity of the national economy," the interdepartmental document assessing the National Development Plan (*AP2027) states.

Croatia Has Pulled Ahead

"It should be concluded that Latvia's position since 2020 in the Human Development Index list has changed little, and in 2023, there was even a drop from 37th place to 41st place in the world. Although the index value for Latvia increased by one-tenth, Latvia was overtaken by countries such as Portugal, Lithuania, Croatia, and San Marino. This indicates that additional efforts and investments are needed in the fields of education and healthcare, as well as in the growth of the national economy..."

Labor productivity is a concept well known to older generations from economic reports of the planned economy, and it is relevant in market conditions.

In monetary terms (euros per hour worked), this indicator in Latvia was highest in 2021, when it reached 63.8% of the EU average. However, over the past two years, it has decreased to 62.7%.

"Without a significant change in trends, it will be impossible to achieve the goals of *AP2027. It is worth noting that similar trends are observed in the other Baltic states — productivity has been at a lower level over the past two years... At the same time, Latvia has the third lowest labor productivity among EU countries, with only Bulgaria and Greece having lower figures."

Programmers Work for Export

The share of employment in the service sectors that fall under high-tech and medium-high-tech industries in Latvia is below the EU average (5.6% in 2024) and has hardly changed over the past four years, fluctuating between 1.9-2.1% (2% in 2024), indicating that the transformation of the economy into knowledge-intensive sectors is occurring slowly. Most of the labor market is still occupied in traditional industries.

"In addition, - the document states, - one can also consider such an indicator as the number of economically active enterprises in priority sectors of the national economy, which grew by 7% from 2021 to 2023 (16,677 in 2021, 17,875 in 2023). In the post-pandemic period, this indicates the adaptation of the economy, investment activity, and the use of new entrepreneurial opportunities." In particular, the sector of computer program and information product production has grown from 4.7% to 13% of total exports over the decade since 2014, which allows for the achievement of the target indicator of *AP2027. Innovative labor productivity significantly increased during the pandemic — by 6.5 percent. This can be explained by the overall transition to remote working methods and the implementation of information solutions. However, in the last couple of years, stagnation has returned.

All is Well, Beautiful Marquise

According to Eurostat surveys, the population of Latvia in 2024 expressed overall satisfaction with their life — 80% stated that they were satisfied. Thus, the criteria of *AP2027 were exceeded by a full 10 percentage points.