The European Commission (EC) forecasts that Latvia will experience the weakest economic growth among the Baltic states this year.
According to the EC’s latest economic forecasts, Latvia’s gross domestic product (GDP) is expected to grow by just 0.5% in 2025. This is a downward revision from the 1% growth projected in November.
At the same time, in its spring forecast published on Monday, the EC expects Latvia’s economy to grow by 2% next year.
Inflation in Latvia is forecast at 3% this year, while the increase in the Harmonised Index of Consumer Prices is projected to reach 1.7% in 2026.
LATVIA’S BUDGET DEFICIT IS PROJECTED AT 3.1% FOR BOTH THIS YEAR AND NEXT.
The EC notes that Latvia’s economic growth will remain weak this year. A slight increase in household consumption is expected due to rising incomes linked to tax reform. However, increasing uncertainty amid the complex geopolitical context is likely to encourage more saving. Investment is forecast to rise in 2025, supported by inflows of EU funds and increased defence spending. After a decline in previous years, exports are expected to recover this year, though only gradually, due to the negative impact of U.S.-imposed tariffs on Latvia’s main trading partners.
Valdis Dombrovskis, European Commissioner for Economy and Productivity, Implementation and Simplification, stated that economic activity in Latvia continues to be negatively affected by geopolitical risks. Growth has also been held back by challenges in export markets and lower investment.
“As real wages continue to rise, further growth in private consumption is expected, and economic growth will also be supported by increased EU-funded investment,” said Dombrovskis.
Among the Baltic states, the EC expects the fastest economic growth this year in Lithuania, with GDP rising by 2.8%, and by 3.1% next year. Inflation in Lithuania is forecast at 2.6% this year and 1.2% next year.
For Estonia, the EC forecasts GDP growth of 1.1% this year and 2.3% next year. Inflation is expected to reach 3.8% this year and fall to 2.3% in 2026.
In its spring forecast, the EC expects EU-wide economic growth of 1.1% this year and 1.5% next year. The euro area economy is projected to grow by 0.9% this year and 1.4% in 2026.
Inflation in the EU is forecast at 2.3% this year, dropping to 1.9% next year. In the eurozone, inflation is expected at 2.1% this year and 1.7% next year.
This year, GDP growth is forecast in all EU member states, except Germany, where GDP is expected to remain flat, and Austria, where a 0.3% decline is projected. The fastest growth is expected in Malta (+4.1%), Ireland (+3.4%), Croatia (+3.2%), and Cyprus (+3%).
The European Commission publishes two comprehensive forecasts each year (in spring and autumn) and two interim forecasts (in winter and summer). The interim forecasts cover annual and quarterly GDP and inflation data for the current and following year across all member states, as well as for the EU and the euro area as a whole.