According to the data published by the Central Statistical Bureau, in Q4 last year gross domestic product (GDP) in Latvia at constant prices was 0.3% higher than a year ago. Although the economic growth rates slowed down in the second half of the year, last year the economy generally grew by 2%.
The main reasons for the economic slowdown are the high uncertainty in the current geopolitical situation, which affects supply chains of raw materials, and the rapidly rising energy and food prices.
Price growth rates outpace wage growth, negatively impacting the purchasing power of the population. However, due to the base effect of the COVID-19 pandemic restrictions and the improvement in the labour market situation, in 2022 household consumption dynamics remained positive – in Q4 last year private consumption was 6.3% higher than a year ago, but overall it grew by 8.1% in 2022.
Despite the high uncertainty, there was still moderate growth in investment last year. In Q4 2022, investments increased by 0.2% compared to Q4 2021. Overall, in 2022, investments in gross fixed capital formation increased by 0.7%. Investments in housing, buildings and structures fell by 11%. At the same time, investment in machinery and equipment increased by 9% and in intellectual property products – by 21.2%.
Exports of goods and services in Q4 last year were by 2.9% higher than in Q4 2021, and in 2022 they grew by a total of 9.1%. With COVID-19 pandemic restrictions lifted, exports of services are recovering rapidly, up 20% in 2022 compared to a year ago. Exports of transport services, computer services and other economic activities last year increased rapidly. Exports of goods last year rose by 5.6%. The main export goods were wood and wood products, electrical appliances and electrical equipment. In 2022, import volumes increased at faster rates than exports (by 11.6%) and export-import balance at current prices was -5.6% of GDP.
In 2022, the total value added across sectors increased by 2.7%. Rapid growth rates were observed in the sectors hit the hardest by Covid-19 pandemic restrictions. In Q4 last year, accommodation and food service activities grew by 60%, arts, entertainment and recreation – by 23.3% and business services – by 13% year-on-year. Growth rates in these sectors reached a two-digit number during the year as well. In 2022, there was a steady rise in the ICT sector, with a 15.5% increase in Q4 and a 14% increase in 2022 in total. 2022 was also successful for agriculture and forestry (7% up). Despite rising costs, disruptions in supply chains and high uncertainty, positive growth remained in manufacturing in 2022 (+2.7%). Output volumes in wood processing and food industry fell slightly behind the levels of 2021. At the same time, positive trends were observed in manufacture of electrical equipment, non-metallic mineral products, furniture, metal products. In some sectors, production and service volumes decreased last year. Due to the rapid increase in prices and decrease in consumption, a decrease was recorded in the electricity, gas and heat supply sectors (by 14.3%). Due to the rapid increase in costs, the decline in the construction sector continues (by 11.3% compared to 2021). The sanctions imposed by the EU have resulted in a decrease in the turnover of goods with Russian and Belarusian markets, resulting in the wholesale sector shrinking by 18.3% in 2022.
Uncertainty and high prices continue to affect both business and consumer environment and thus economic development indicators. Very moderate economic growth rates will most likely be witnessed in the first half of this year. The Ministry of Economics forecasts that if there is no significant deterioration in the current geopolitical situation in 2023 GDP will remain close to the level of 2022.