The Bank of Latvia has downgraded its forecasts for the country's economic development in the coming years. It is now expected that the economy will grow by 2% in 2026, rather than 2.8% as previously assumed.
The Bank of Latvia has revised its expectations regarding the country's economic growth rates, citing a deteriorating external environment and ongoing geopolitical uncertainty.
According to new forecasts, Latvia's gross domestic product (GDP) is expected to grow by 2% in 2026. In December of last year, the central bank anticipated an increase in the economy by 2.8%.
Forecasts for subsequent years have also been revised. In 2027, GDP is projected to grow by 2.4% instead of the previously expected 2.9%, and in 2028, by 3% instead of 3.2%.
The Bank of Latvia explains the worsening forecasts as a consequence of international crises that weaken demand for Latvian goods and services, as well as prompting consumers and businesses to act more cautiously.
Ongoing conflicts outside the country have a particularly significant impact. Military actions in the Middle East are already leading to increased transportation costs, fuel prices, packaging, and fertilizers, which gradually reflect on the cost of production and services.
At the same time, some of the additional burden is currently being offset by companies through their own profits and previously accumulated raw material stocks. However, this resource is not infinite, so the consequences of rising costs may manifest later.
For the residents of Latvia, this means that the recovery of consumption, which economists had hoped for just a few months ago, is being postponed. People continue to exercise caution in major purchases and expenditures, despite the savings accumulated during previous years.
At the same time, the Bank of Latvia does not expect a complete halt in the economy.
Support for growth is expected to come from the defense industry, the production of dual-use goods, government infrastructure projects, and increased investments in housing construction.
Uncertainty also affects business investment activity; however, the overall volume of investments remains relatively high due to government programs and spending on security.
Serious upheavals in the labor market are not currently forecasted.
Although demand for workers is gradually decreasing, the labor shortage remains noticeable due to an aging population and demographic issues. As a result, unemployment is expected to rise only slightly.
According to the Bank of Latvia, the unemployment rate will reach 6.7% by the end of 2026, then decrease to 6.5% in 2027 and to 6.3% in 2028.
Wage growth will also continue, although somewhat slower than previously expected. Gross wages are projected to increase by approximately 7–7.5% annually.
Despite the worsening forecasts, the Bank of Latvia still expects economic growth in the coming years. The main sources of support remain government investments, defense projects, and infrastructure development, while external risks continue to restrain a faster recovery.
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