Latvian Retail Faces Headwinds as Consumer Spending Cools
Meta Description: Latvian retail sales experienced a slowdown in December 2025, signaling a shift in consumer behavior amid economic uncertainty.
Latvian retail sales are showing signs of a significant slowdown, with December data revealing a decrease in turnover despite annual gains. Real turnover increased by 0.8% year-over-year, but contracted by 0.8% compared to November, marking the weakest performance since May. This shift indicates a cooling of consumer spending and a growing sense of caution among Latvian households.
December Sales Reflect Broader Economic Trends
According to an assessment by an economist at Luminor bank, the recent dip is partially attributable to a “base effect,” as December of the previous year saw robust retail performance. Last year’s overall goods sales grew by 1.5%, a positive figure but still considered “very modest against the background of the overall economic data.” The slowdown suggests a broader recalibration of spending habits as economic conditions evolve.
Food Spending Stabilizes Amid Price Increases
The impact of rising prices is particularly evident in food retail. An economist at Citadele bank noted that increased purchasing power, coupled with elevated food prices, led citizens to spend roughly the same amount on their food baskets in December 2025 as they did in December 2024, with retail sales in this sector increasing by only 0.2%.
Looking at actual prices, the average turnover in food stores grew by just 3.3% in 2025 compared to 2024. This indicates a clear adaptation by consumers, who are adopting “more prudent and economical food purchases” and redirecting savings towards deferred expenses.
Shifting Spending Patterns: From Essentials to Durables
The data reveals a divergence in spending patterns. While daily consumer goods saw modest growth, certain retail segments experienced more significant gains. Turnover in the retail trade of pharmaceutical and medical goods increased by a notable 13.2% compared to December 2024.
Consumers also increased their purchases of household electrical appliances and information and communication technologies. Conversely, spending decreased on cultural and leisure goods, clothing, shoes, household tools, and building materials. This suggests a prioritization of essential and durable goods over discretionary spending.
Enthusiasm for Spending Fades
The Bank of Latvia’s economist acknowledged that the initial enthusiasm for spending has largely subsided, with the increase in retail sales no longer prominently visible in monthly data. Data from the Bank of Latvia also show a typical end-of-year increase in deposit balances in December. However, the European Commission’s latest sentiment survey suggests that planned larger purchases, home improvements, or home buying may be dampening current spending.
Cautious Optimism for 2026
Despite the recent slowdown, forecasts for 2026 remain consistently positive. An economist at Luminor bank stated that “wage growth continues” and “raw materials markets are favorable to consumers.” While an anticipated cold wave may temporarily increase energy costs, it is not expected to significantly impact overall purchasing power.
Furthermore, growing household lending is reinforcing a positive cycle – increased optimism fuels consumption, which in turn boosts incomes and further strengthens optimism. “Gravity has not been canceled, but cyclical factors in the economy can play a big role,” the economist added, acknowledging potential obstacles to these forecasts.
Gradual Growth Expected in the Coming Year
The economist at Citadele bank concurred that the outlook for retail sales in 2026 is generally positive, but anticipates “gradual rather than rapid” growth. Purchasing power is expected to continue improving as wage growth outpaces inflation. Inflationary pressures are also projected to ease in 2026, creating a more favorable environment for consumption.
Over the past five years, the purchasing power of the Latvian population has demonstrably improved. Since the beginning of 2021, average gross salaries have increased by 51.3%, while the average price level has risen by 38.4%. Accounting for recent changes in labor taxes, including an increased non-taxable minimum, the difference between income growth and price increases is even more substantial.
Cautious Consumer Behavior to Persist
Despite the positive outlook, consumer behavior is expected to remain cautious. Global uncertainty, geopolitical risks, and economic fluctuations will likely encourage residents to continue saving a portion of their income rather than spending it immediately. This suggests that retail segments focused on deferred purchases – such as household appliances, electronics, and vehicles – will likely benefit, while growth in daily consumer goods, particularly food, will remain moderate.
In conclusion, 2026 could mark a slow but steady return to healthier retail growth, driven by genuine economic opportunities rather than impulsive spending.
