Latvia’s Ministry of Economics predicts the country’s economy may start growing again in mid-2023. At the same time, economic growth in 2023 is expected to be slower than this year.
The ministry’s experts have prepared a review of Latvia’s economic development in 2022. This report details the country’s most notable economic and social indexes, industrial development and perspectives for economic development, the government’s economic policy and its main tools.
The economic situation in the world and Latvia is significantly affected by Russia’s invasion of Ukraine. Due to the war, global economic activity is in decline – supply chains are disrupted and inflation is the highest it has been in the last decade, stresses minister Ilze Indriksone, adding that at the same time this is happening in a situation when the world is only beginning to recover from Covid-19 pandemic.
In 2022 Latvia’s economic growth, due to geopolitical factors, went down by at least three percentage points with compared with outlooks prior to Russia’s invasion of Ukraine.
However, economic growth has become positive and may reach 1-2% in 2022, the report mentions.
According to the ministry, economic situation will be at the end of 2022 and will remain such in the first half of 2023. Nevertheless, economic growth may return in the middle of 2023.
«Priorities of the Ministry of Economics for 2022 still include security of the country’s economy,» stresses minister Ilze Indriksone.
She also mentions that for a strong economy it is necessary to resolve existing challenges and start working on future opportunities: ‘This is why our priorities will still include promotion of growth and funding availability for businesses, as well as investments into the economy, human resources and people-friendly employment policy, housing availability and improvement of energy efficiency.’ The minister says all of this is necessary to raise Latvia’s economic indexes and residents’ welfare.
Future development of the economy will depend on the situation in foreign markets and progress with domestic reforms.
Latvia’s biggest risk is tied to the development of the global economy, especially Covid-19 and the geopolitical situation. The development of the European Union’s general economic space is as important. Latvia’s economic advantages lie with macroeconomic stability, which has improved Latvia’s credit ratings, as well as efficiency of planned EU support programmes, stresses the ministry.
Latvia’s advantages in economic competitiveness mainly lie with technological factors, improvement of manufacturing efficiency and innovations, less with cheap labour force and low resource prices.
The Ministry of Economics predicts that in 2023 GDP growth will be minimal but positive, whereas inflation – below 10%.
In the medium-term perspective, Latvia’s growth rate may reach 4-5% annually. At the same time, if the war in Ukraine goes for longer and Covid-19 pandemic returns, economic recovery rates may turn out slower.
Because of the difficult geopolitical situation, it is expected the situation in the labour market in 2023 will remain cautious. Latvia’s resilience against external shocks improved a great deal over the past several years, especially in the finance sector. This means the effect from sanctions and narrowing of the export market on Latvia’s labour market will be limited.
According to the ministry, the labour market will remain affected by recovery from Covid-19 and construction of state infrastructure objects and other important investment and economic recovery measures.
Also read: Ministries and independent institutions in Latvia request significant upping of funding for 2023