The Report on the Economic Development of Latvia prepared by the Ministry of Economics (ME) (hereinafter referred to as the Report) includes information on the most important economic and social indicators of Latvia, development of industries and the external economic environment, the government’s economic policy, and the main instruments of its implementation. ME specialists prepare such a Report once a year.
It is noted in the Report that economic growth in Latvia became more moderate in 2019, it is still one of the most rapid in the European Union (EU). Gross domestic product (GDP) has grown by 2.5% in the nine months of the year. The deceleration of growth rates was underpinned by both internal factors (the investments from EU funds have reached their maximum, developments in the financial sector, etc.) and external factors (review of global trade relations, Brexit, slower growth in EU countries). It may be expected that the above-mentioned global factors will affect Latvian growth also in 2020 having negative impact on the Latvian export capacity. Positive trends in domestic demand oriented industries are also expected to continue. The Ministry of Economics forecasts that in 2019, the economy will generally grow by 2.5% and will grow at a similar pace also in 2020.
Economic activity of the population has reached the highest level so far and is currently close to its potential, therefore further improvements are possible only if structural inadequacies are mitigated – regional differences in the labour marker, mismatch between skills demand and supply.
With the economic situation becoming more stable, wage growth has resumed since the end of 2010. The increase in wages has remained above 5% per year in the last four years. The average gross wage grew by 8.3% in Q3 2019 compared to Q3 2018, reaching 1,091 euro for full-time work. Strong pressure from the demand side on the labour market is expected to continue further. At the same time, the labour market will continue to be affected by negative demographic trends and regional labour market differences.
Further economic development depends on the situation in the external environment and progress in reforms. Further development of Latvia’s economy will be still closely linked to export possibilities. Therefore the highest risk to the growth of Latvia is linked to global economic development.
“In order to promote growth, the Ministry of Economics continues strengthening of competitiveness of the economy, providing businesses with support to increase productivity and international competitiveness. This is particularly important taking into account that a considerable increase in labour costs is inevitable in conditions of an open labour market. The strategy of the Ministry of Economics provides that the benefits of the Latvian economic competitiveness are mainly based on technological factors, improvement of production efficiency, and innovation, to a lesser extent on cheap labour and low resource prices,” emphasises the Minister of Economics Ralfs Nemiro.
The Report describes the policy implemented by ME 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.