In spite of the tense geopolitical situation in the region, Latvia’s economy continued to grow in 2015. In addition to that, growth rates of the country’s economy increased in Q2 2015. As a result, economic growth of Q3 2015 reached 3.3%. Latvia’s GDP was 2.7% larger in Q3 2015 than it was the year prior.
Domestic demand continued to grow as well. Relatively quick rise of average wages and low inflation contributed to private consumption growth. Private consumption of the first three quarters of 2015 was 3.6% higher than that of the same period of 2014, as reported by Economy Ministry.
The level of investments was also 3.4% higher in the first three quarters of 2015 in comparison with the same period of 2014, which was largely due to an increase of investments in the country’s transport sector. A more rapid rise of investments was impacted by the general wait-and-see strategy of businessmen and the uncertainty among foreign investors. Public consumption continued to growl along with state budget expenditure in 2015.
Although export volumes to Russia declined significantly in 2015, the general level of Latvian exports increased to other countries. Exports of goods in actual prices were 1% higher in the first ten months of 2015 in comparison with the previous year. Exports to Europe increased 2.8%. The greatest contribution to export growth came from value growth of agricultural and food products. Exports of chemical products, mechanical appliances and electrical equipment increased as well. Exports were 25.6% lower to Russia and 6.4% lower to CIS countries in the first ten months of 2015 in comparison with the same period of 2014. Rapid decline of exports to the east was affected largely by the economic recession in Russia and the country’s partial restrictions on imports of certain food products. At the same time, it is worth mentioning that Latvia’s exports to third countries increased 15% in this period of time, which means Latvian producers have managed to find new export markets in spite of the complicated geopolitical situation and tension in the region.
Stable economic growth was noted in Latvia’s processing sector (3.9% in the first nine months), where the largest growth was noted in metalworking and woodworking sectors. Turnover of retail trade in Latvia continued to grow moderately well (5.7% in the first nine months).
Continued economic growth also had a positive impact on the situation on the labour market. The number of employed people in Latvia reached 902,000 in Q3 2015, which is 1.8% more than the year prior. Employed people make up 61.4% of Latvia’s residents aged 15 to 74. The most notable increase in the number of jobs was registered in the services sector – commercial services, health and social services, accommodation and catering services. The largest reduction in the number of jobs was noted in Latvia’s processing industry (food production and clothes production), construction and state administration. Latvia’s unemployment level was 9.7% in Q3 2015, which is 0.9 percentage points lower than the year before.
Latvia’s economic development will be tied closely to export expansion options next year. One the one hand export development dynamics will be limited by weak demand in CIS countries. On the other hand, export development will benefit from further expansion into Europe. Private consumption will continue growing, which is largely due to increasing wages in the country. Investments are vital for future economic growth. However, investment dynamics are expected to be slow at best.
Growth of private consumption in 2016 will contribute to the growth of industries aimed at Latvia’s domestic and external markets. Positive trends noted in processing industry will remain next year. Production output will continue to increase. In order to maintain growth rates in the country’s industrial sector, it is necessary for companies working there to diversify the range of goods they produce and explore new markets. Development of Latvia’s construction sector is expected to be slow. This sector’s development is closely tied to projects launched by EU funds.
The situation on the labour market will continue to improve in 2016; the number of employed people in Latvia may increase to approximately 903,000 people. With that, the country’s employment level could potentially reach 62%. Unemployment, on the other hand, could reduce to 8.6%.
It is worth mentioning, however, that competitiveness of Latvia’s economy will play a major role in future development. It is vital to find new and effective ways of improving economic growth further, raise Latvian companies’ competitiveness in their respective fields, raise the capacity of innovative technologies and business models, emphasizes the ministry.