At the same time,the Bank of latvia has reduced the GDP growth forecast for 2025 from 2.6% to 2.1%, while the economic growth forecast for 2026 has been maintained at 3%. On the other hand, in 2027, growth of 3.3% is predicted.
Also, the central bank predicts that there will be stronger growth in 2025, which will be supported by private consumption, exports and investments. At the same time, the forecasts were developed in conditions of still high uncertainty, taking into account the uncertainty in Germany and Donald Trump’s plans to introduce high import tariffs after becoming the US president, as well as the developments in the neighboring regions of Europe.
Government consumption remains a stable pillar of the national economy, but it cannot sustain growth for a long time, warns the Bank of Latvia.
The Bank of Latvia predicts that private consumption in Latvia will grow by 0.1% this year, by 2.6% next year, by 3.1% in 2026, and by 3.3% in 2027, while government consumption this year will increase by 6.4%, next year – by 1.6%, in 2026 – by 0.4%, and in 2027 – by 0.8%.
The Central Bank states that a long delay in the implementation of projects financed by the European Union (EU) weakens the already weak overall investments. According to the forecasts of the Bank of Latvia, the situation could improve in the coming years, as domestic demand strengthens, which will also be supported by faster export growth.
The Bank of Latvia predicts that investments are expected to fall by 4.4% this year, while an increase of 3.1% is expected in 2025, by 4.9% in 2026, and by 3.9% in 2027.
On the other hand, this year’s export is forecast to drop by 2.2%, while next year it is indeed expected to increase by 1.2%, in 2026 – by 2.8%, and in 2027 – by 3.1%. At the same time, according to the estimates of the Bank of Latvia, imports will decrease by 2.9% this year,while next year they will increase by 2.4%, in 2026 – by 3.1%,and in 2027 – by 3.6%.
The Bank of Latvia informs that the Economic Climate Indicator, which reflects changes in the mood of entrepreneurs and consumers, also points to the recovery of the national economy. Within the business cycle, industrial and service sectors, and also consumer sentiment, are currently in an upward phase.
By constantly postponing,but not extending,the implementation of projects financed by the Renewal and Resilience Fund,a rapid increase in investment is expected until the middle of 2026,predicts the Bank of Latvia. Investments in development also contribute to changes in the manufacturing industry, in the future supplementing the export portfolio with products of higher added value.
According to the forecasts of the Bank of Latvia,weak export growth is expected in the short term under the influence of decreased external demand. This is accompanied by concerns about the competitiveness of Latvian companies. However, in the medium term, the Bank of Latvia expects a recovery in demand, which will be stimulated by a less strict monetary policy and a still expansive fiscal policy. On the other hand,challenges in the German economy,the results of the US elections and possible protectionist policies,as well as growing instability in the EU’s neighboring regions have increased global uncertainty.
The current account deficit will increase in the medium term,reaching 5% of GDP in 2027,the Bank of Latvia predicts. This is affected by both the weakening of export competitiveness and the larger volume of imports, including the import of construction services and goods for the needs of the “Rail Baltica” railway project, as well as military supplies. The forecasts do not include assumptions about changes in international trade tariffs and their possible impact.
The Bank of Latvia predicts that consumption will be boosted by the tax reform and the government’s new decisions on additional expenses, mainly for salary increases for those working in the internal affairs sector and teachers. In the flow of public investments, as the end of the forecast period approaches, the importance of “Rail Baltica” will continue to grow, taking into account the government’s decision to prioritize the construction of the main line, which will require ample funds.
The budget deficit forecast has not changed significantly since the October forecast, still exceeding 3% of GDP in the coming years, and the situation, according to the forecasts of the Bank of Latvia, will only improve at the end of the period. Accordingly,in 2025 the budget deficit could be 3.4%, in 2026 – 3% and in 2027 - 2.6% of GDP.
The national debt forecast has been slightly increased as October – mainly due to weak economic growth. Towards the end of the forecast period, the national debt will exceed 50% of GDP, and debt sustainability can be assessed as a moderate risk, informs the bank of Latvia.
The Bank of Latvia forecasts unemployment at 6.9% this year, 6.8% next year, 6.5% in 2026, and 6.3% in 2027.
The Bank of Latvia states that the labor market remains stable,unemployment will be affected by the enhancement of employment expectations,gradual recovery of the external environment and further recovery of the national economy.
How does private consumption impact Latvia’s economic recovery predictions for 2026 and 2027?
Interview between Time.news Editor and Dr. Anna Kļava, Economist at teh Bank of Latvia
Time.news Editor: Welcome, Dr. Kļava! Thank you for joining us today to discuss the recent GDP growth forecasts from the Bank of Latvia. As noted in your report, there have been some adjustments to the projections for 2025. Could you explain why the forecast for that year has been reduced from 2.6% to 2.1%?
Dr.Anna Kļava: Thank you for having me! The reduction in the GDP growth forecast for 2025 primarily stems from several economic uncertainties both domestically and internationally. As an example, there are concerns regarding developments in Germany and potential trade policy changes in the United States under Donald Trump’s governance. High import tariffs could impact Latvia’s export dynamics,which are crucial for our economy.
Time.news Editor: That makes sense. The interconnections within the global economy are certainly significant! despite this revision, the Bank maintains a positive outlook for subsequent years. What factors are expected to drive growth in 2026 and 2027?
Dr. Anna Kļava: The forecasts for 2026 and 2027 remain optimistic, projecting growth rates of 3% and 3.3%, respectively. We anticipate that private consumption will be a key driver,with growth projected to increase substantially in the coming years. Additionally, strengthened domestic demand and increasing exports will also contribute positively to our economic recovery.
Time.news Editor: You mentioned private consumption specifically; could you elaborate on it’s projected growth rates?
Dr. Anna Kļava: Certainly! We forecast that private consumption will grow by 0.1% this year, but thereafter it will accelerate—projected at 2.6% in 2025, 3.1% in 2026,and reaching 3.3% by 2027. This gradual increase can be attributed to improved consumer sentiment and purchasing power, alongside government support measures.
time.news Editor: speaking of government support, the report also indicates some concerning trends regarding investment levels. Can you provide insights on that?
Dr. Anna Kļava: yes, while government consumption is currently stable—forecasted to grow by 6.4% this year—it’s important to note that it cannot sustain long-term economic growth alone. We are anticipating a drop in investments by 4.4% this year, primarily due to delays in EU-financed projects. However, we expect investments to rebound, with positive growth projected in the following years as implementation speeds up.
Time.news Editor: Notably, the Economic climate Indicator suggests a recovery in the national economy.How does this correlate with the mood of business leaders and consumers?
Dr. Anna Kļava: The Economic Climate indicator reflects a more optimistic outlook among entrepreneurs and consumers. This recovery is crucial as it signals confidence in the industrial and service sectors. Positive sentiment usually leads to better investment decisions and increases in consumer spending, which can further stimulate economic growth.
Time.news Editor: your insights highlight a complex but hopeful economic landscape. As the Bank of Latvia navigates through these challenges and uncertainties, what do you believe will be the key to maintaining this positive trajectory?
Dr. Anna Kļava: The key will be a balanced approach that includes supportive monetary policies, effective implementation of investment projects, and fostering a conducive environment for private sector growth. Staying agile and ready to respond to global economic changes will also be critical.
Time.news Editor: Thank you,Dr. Kļava! Your expertise is invaluable, and it helps paint a clearer picture of Latvia’s economic future. We look forward to following the developments in your country!
Dr. Anna Kļava: Thank you for having me! It’s always a pleasure to discuss our economy and share insights.