The Bank of Latvia has lowered its forecast for Latvia’s gross domestic product (GDP) growth this year from the previously projected 2.8% to 2%, Uldis Rutkaste, Head of the Monetary Policy Department of the Bank of Latvia, announced on Tuesday while presenting the central bank’s latest economic outlook.
The GDP growth forecast for 2027 has also been revised downward, from 2.9% projected in December to 2.4%, while the forecast for 2028 has been reduced from 3.2% to 3%.
According to the Bank of Latvia, external shocks are worsening the outlook for economic growth.
The central bank noted that disruptions in the external environment are weakening foreign demand and increasing caution among both consumers and investors. At the same time, investments in military and dual-use goods production, along with the implementation of other major state projects, are becoming increasingly important drivers of growth, helping to maintain a forecast of moderate economic expansion. As a result, GDP growth is expected to be slower in the coming years, although it is still projected to remain positive.
The Bank of Latvia also pointed out that
ongoing conflicts in the Middle East are increasing transportation, fuel, packaging, fertilizer, and other production costs.
At present, farmers, manufacturers, retailers, and other economic actors are largely absorbing these additional costs through profit margins and previously accumulated inventories of intermediate goods. Consequently, part of the cost increase is expected to materialize as a more significant burden during the next procurement cycle for raw materials and supplies.
According to the central bank, previously accumulated household savings will help cushion new waves of uncertainty and support moderate growth in private consumption. However, the stronger rebound in consumer spending that had been anticipated earlier has once again been postponed, primarily due to geopolitical tensions.
The Bank of Latvia further noted that uncertainty is slowing investment growth. Nevertheless, overall investment levels are expected to remain close to the high levels recorded last year and could strengthen further in 2028. This relative stability is expected to be supported by investments in military production, an acceleration in housing construction, major government investment plans, and increased defence spending.
The central bank also emphasized that Latvia’s labour market remains tight,
although weaker economic growth is expected to reduce labour demand slightly.
The unemployment forecast has been revised marginally upward. Labour supply is not increasing significantly, as rising economic participation only partially offsets the effects of population ageing and migration trends. At the same time, labour demand is expected to decline only modestly, meaning that the labour market will remain tight and unemployment is still forecast to gradually decrease over the projection period.
Wage growth is expected to remain strong, although somewhat slower than projected in December. The moderation reflects weaker economic growth and more subdued labour demand. However, higher inflation is expected to prevent a more significant slowdown in wage growth.
The Bank of Latvia forecasts that unemployment will stand at 6.7% of the economically active population by the end of 2026, decline to 6.5% by the end of 2027, and fall further to 6.3% by the end of 2028.
Gross wage growth is projected at 7.4% in 2026, 7.3% in 2027, and 7.5% in 2028.
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