European Commission reports Latvia’s economy took covid crisis better than expected

Latvia’s economy has done well to weather the crisis caused by Covid-19. However, Russia’s invasion of Ukraine has worsened recovery perspectives, as mentioned in European Commission’s 2022 report about Latvia.
According to the European Commission, the effect of the crisis on Latvia’s economy was lower than the average in the European Union. It recovery was briefly slowed by low vaccination indexes and the need to maintain epidemiological restrictions on economic activities. However, at the start of 2022, vaccination indexes had improved considerably. This allows that epidemiological expectations for 2022 will help increase consumption of households and exports of services, which have yet to reach their highest level from before the pandemic.
With that, Latvia experienced stable growth rates at the start of 2022. It is expected consumption, investment and export indexes will be good. However, Russia’s invasion of Ukraine and the price rise on goods, especially energy, that followed did worsen recovery perspectives after the pandemic.
EC predicts losses of export revenue and the rapid price rise in 2022 will slow down the actual growth to 2%. It is expected that in 2023 private consumption and exports will help increase economic growth to 2.9%.
The report also mentions that Latvia has close trade tires with Russia, and the country relies on imports of energy from this country. It is expected that comparatively speaking, Latvia’s trade with Russia will cause a loss in export revenue and will significantly increase raw material prices for lumber and metals, which are mostly imported from Russia.
EC predicts the economic and financial sanctions imposed on Russia and Belarus, as well as Latvia’s will to completely cease using gas from Russia will halt trade with both countries in all groups of goods. Latvia’s total export volume to Russia and Belarus exceeded 4% of GDP in 2021. Imports, however, including energy products, were more than 6% of GDP that year.
It is also expected the rapid climb of energy prices and supply chain disruptions both cause high inflation. EC predicts that because of rapid rise of energy and food prices inflation will reach 9.4% in 2022.
Although it is expected the energy product price rise in the world will calm down in spring 2023, the rapid price rise in the industrial and construction sector may cause a ‘domino effect’, which will contribute to inflation.