The Organisation for Economic Co-operation and Development (OECD) in a report published on Tuesday forecasts that Latvia will experience the weakest economic growth among the Baltic countries in 2024.
The OECD projects that Latvia’s gross domestic product (GDP) will grow by only 1.1% this year.
In 2025, Latvia’s economy is expected to grow by 2.1%.
In comparison, back in December, the OECD had forecasted a higher GDP growth of 1.9% for 2024 and 2.5% for 2025.
According to OECD estimates, Latvia’s harmonised consumer price index will rise by 3.6% this year and by 2.4% next year. Meanwhile, unemployment is projected to stand at 6.8% in 2024 and 6.5% in 2025.
The OECD notes that high inflation and escalating geopolitical uncertainty in Latvia are negatively affecting the recovery of household consumption and investment.
While public investment is expected to gradually strengthen domestic demand, global trade restrictions are weakening export demand. At the same time, core inflation is expected to remain high, driven by significant wage increases due to labour shortages. Further delays in absorbing European Union funds could also hinder domestic demand recovery.
The organisation emphasizes that to ensure medium-term fiscal sustainability, it is important to increase revenue and reallocate spending to fund defence capability enhancements.
Among the Baltic states, the OECD predicts the strongest growth in Lithuania, with GDP expected to rise by 2.7% this year and 2.4% in 2025. Consumer prices in Lithuania are forecast to increase by 4% in 2024 and 2.5% in 2025. Unemployment is projected to be 6.3% this year and 5.8% next year.
Estonia is projected to experience 1.5% GDP growth this year, and 2% next year. Consumer price inflation is expected at 4.2% in 2024 and 2.3% in 2025. Unemployment in Estonia is estimated at 7.8% this year and 7.6% in 2025.
On a global scale, the OECD has cut its forecast for global economic growth to 2.9% for both this year and next, down from the previously expected 3.1% and 3.0%, respectively. The downgrade is attributed to potential global economic impacts from former U.S. President Donald Trump’s trade war rhetoric, which the OECD warns would hit the U.S. economy particularly hard.
For the eurozone, growth forecasts remain unchanged at 1% for 2024 and 1.2% for 2025. In Germany, the largest European economy, GDP is expected to increase by only 0.4% this year and by 1.2% in 2025.
Meanwhile, the OECD has revised down its forecast for the U.S. economy, projecting 1.6% growth this year (down 0.6 percentage points) and 1.5% next year (down 0.1 percentage points).