The economic situation in the world and also in Latvia is significantly affected by the unprovoked Russian invasion of Ukraine this year. Because of the war, global economic activity is slowing down, supply chains have been disrupted, and inflation is at a higher level than in several past decades. All this is happening in a situation when the world is just beginning to recover from the consequences of the Covid-19 pandemic. In 2022, economic growth in Latvia will fall by at least 3 percentage points compared to the previous forecasts before the Russian invasion of Ukraine. However, this year, growth has remained positive and can reach 1-2% year-on-year.
In view of the rapid deterioration of the geopolitical situation, the Ministry of Economics developed several new support instruments to stabilise the economy as a whole and provide support to entrepreneurs. Support to businesses affected by the Ukrainian war was provided both in the form of grants and in the form of financial instruments. Support to households and entrepreneurs provided for partial compensation of the increase in energy prices in this heating season, as well as a more favourable calculation of housing benefit in local governments was created,” the Minister of Economics Ilze Indriksone emphasises.
The report Economic Development of Latvia for 2022 prepared by specialists of the Ministry of Economics includes information on the most important economic and social indicators of Latvia, the development of industries and the external economic environment, economic development prospects, the government’s economic policy, and the main instruments of its implementation.
High uncertainty affects the consumption of the population, future plans of businesses, and foreign trade. The most difficult situation in the economy is expected in late 2022 and the first half of 2023. Growth could start in mid-2023, but overall growth is expected to be much more moderate in 2023 than in 2022.
Next year, priority tasks of the Ministry of Economics will still have economic security of the state as a priority. Building a strong national economy requires not only addressing current challenges, but also taking care of future possibilities. Therefore, just as important is the promotion of growth and access to finance for entrepreneurs and the contribution of science to the economy, contribution to human resources and the creation of a population-friendly employment policy, housing affordability and improving energy efficiency – all of which are needed to build both our economic performance indicators and the well-being of our citizens,” the Minister of Economics indicates.
Further economic development in the medium term will depend on the situation in the external environment and progress in reforms. The highest risk to the growth of Latvia is related to global economic development, in particular stopping the spread of Covid-19 and the geopolitical situation. Further development of the European Union’s total economic space will be equally important. In the medium term, the economic advantages of Latvia will mainly be based on the achieved macroeconomic stability, which has improved Latvia’s credit ratings, as well as on the efficiency of planned support programmes of the EU funds and on the improvements in the business environment.
The competitive advantages of the Latvian economy are mainly related to technological factors, improvement of production efficiency, and innovation, to a lesser extent to cheap labour and low resource prices. In 2023, GDP growth is projected to be minimal, but positive, while inflation will be below 10%. In the medium term, the growth rates of Latvia could reach an increase of 4-5% a year. If the war in Ukraine and the Covid-19 pandemic endure, the pace of economic recovery might be slower.
In view of the escalation of the geopolitical situation, a wait-and-see situation is expected to continue in the labour market in 2023. The resilience of Latvia’s economy to external shocks has strengthened significantly in recent years, particularly in the financial sector, so a limited direct impact of sanctions and the narrowing of the export market on Latvia’s labour market will be expected. The labour market will continue to be supported by the recovery of sectors from the Covid-19 pandemic and the construction of public infrastructure facilities, as well as other types of public investment and economic recovery support measures.
Specialists of the Ministry of Economics prepare the report Economic Development of Latvia once a year – in December. The report describes the policy implemented by Ministry in the areas of the business environment, innovation and new technology, promoting productive investment and exports, as well as energy, construction, housing policy, tourism, competition policy, consumer protection, etc.
The report Economic Development of Latvia is published on the website of the Ministry of Economics.