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Latvia Economic growth will slow to 1.1% in 2023 before rebounding to 2.4% in 2024. High inflation will weigh on private consumption. Business investment will slow due to less favourable financial conditions and high uncertainty. Exports will improve gradually due to higher external demand. Inflation will ease but remain high as elevated producer prices pass through to consumers. Unemployment will rise slightly, but high wage demands and the rise in the minimum wage will support strong wage growth. Untargeted measures to mitigate the impact of higher energy prices should be phased out as planned to limit additional inflationary pressures, incentivise energy savings and restore fiscal space to support structural changes. Raising the effective carbon price in sectors not covered by the EU-ETS and phasing out fuel subsidies while increasing public investment could help to accelerate the green transition and raise energy security. Active labour market policies should be expanded to reduce skill mismatches and facilitate job reallocation. Inflation remains high Latvia's economy entered a recession after Russia’s war of aggression against Ukraine started, with the war hitting supply chains, private investment and trade. However, private consumption proved more resilient than expected during the winter despite high inflation and the reduced purchasing power of households. Economic sentiment has improved since September 2022, especially consumer confidence. In the first quarter of 2023, GDP grew by 0.6% compared to the previous quarter, led by strong nonresidential investment. The labour market remains tight, even though pressures are starting to ease. The number of job vacancies declined by 14% in the fourth quarter of 2022 and is now lower than in 2019. Even so, the unemployment rate decreased from 7% in August 2022 to 6.5% in March 2023. Headline consumer price inflation has fallen since September 2022 due to declining energy prices but remains high at 15.0% in April 2023. Housing prices declined in the fourth quarter of 2022 after experiencing rapid growth since the beginning of 2021.
Latvia
1. Headline prices refer to the harmonised index of consumer prices, core prices refer to the harmonised index of consumer prices excluding food, energy, alcohol and tobacco, energy prices refer to the harmonised index of consumer prices of energy goods, producer prices refer to the producer prices index for all industry. Source: OECD Prices database; and Statistical Central Bureau of Latvia. StatLink 2 https://stat.link/zw1032
OECD ECONOMIC OUTLOOK, VOLUME 2023 ISSUE 1: PRELIMINARY VERSION © OECD 2023