LATVIA


Geographically, it is the middle one of the three Baltic republics, which were a part of the former Soviet Union; next to the Baltic Sea, borders with Estonia, Russia, Belarus and Lithuania

Total area: 64,589 sq km (slightly larger than West Virginia)
Population:  1.9 million
Government type: Parliamentary democracy
Administrative division: 110 municipalities (called „novads“) and 9 republic cities
Capital + other major cities: Riga (743,000) + Daugavpils (112,000), Liepaja (85,000), Jelgava (62,000)
Currency: Latvia replaced its previous currency, the Latvian lats (LVL), with the euro on 1 January 2014
Languages: Latvian (official) 56.3%, Russian 33.8%, other 0.6% (includes Polish, Ukrainian, and Belarusian), unspecified 9.4%
Ethnicity: Latvian 61.1%, Russian 26.2%, Belarusian 3.5%, Ukrainian 2.3%, Polish 2.2%, Lithuanian 1.3%, other 3.4%
Religion: Lutheran, Roman Catholic, Russian Orthodox
President: (Mr.) Egils LEVITS (since 8 July 2019)
Prime Minister: (Mr.) Arturs Krišjanis Karinš (since 23 January 2019)
Date of EU accession: 1 May 2004
mapa



KEY FEATURES

  • One of the richest forestry resources in Europe
  • Most of Latvia's territory is less than 100 m (330 ft) above sea level
  • Among the world’s greenest countries
  • More than 25% of population is Russian-speaking
  • One of the most wanted FDI destinations in Europe
  • Exports contribute to nearly a third of GDP
  • Corruption and low birth rate are major challenges to economic vitality

MACROECONOMIC OVERVIEW

Since its independence, Latvia has implemented market-oriented reforms. The country's economy has performed well due to steady growth in domestic consumption and the contribution of foreign investment. As a member of the EU since 2004 (and of the Eurozone since 2014), the country has benefited from substantial European funding. The growth rate has been positive since 2011 and was among the highest in the EU countries in 2018, estimated at 3.7% by the IMF. Growth was mainly driven by household consumption and public spending (partly financed with EU structural and investment funds, amounting to over EUR 4.51 billion in the period 2014-2020), and is expected to remain robust in 2019 and 2020, albeit at a slower rate (3.3% and 3.1% according to IMF estimates) due to a slowdown in the overall EU economic performance and to a weaker public consumption and investment growth.

Latvia's macroeconomic indicators are generally positive, as the country pursued tax and labour reforms in accordance with its stability programme for the period 2018-21. Public debt was brought down to 35% of the GDP in 2018 (from 36.3%) and is among the lowest in the EU. The government budget, however, registered a 2% deficit due to investments carried on by the public sector. Inflation was estimated at 2.7% - slightly lower than the previous year - mainly due to lower growth in food prices.

The unemployment rate, which exceeded 20% less than a decade ago, was once again on the decline in 2018 (7.9%) and should decrease further in the upcoming years. Nevertheless, the Latvian economy is negatively impacted by a demographic challenge: the country has one of the lowest population growth rates in the EU

(-1.07% in 2017, CIA World Factbook), with birth numbers declining continuously. Moreover, Latvia has to face a strong emigration of skilled youth. The government is trying to partially offset these issues by increasing the retirement age by three months each year (to reach age 65 in 2025).


Selected economic indicators, Latvia, 2012 - 2018

    2012 2013 2014 2015 2016 2017 2018
GDP
Real GDP growth
%
4.0
3.0
2.4
2.7
2.8
4.6
4.8
GDP at current prices
€ bn
21.98
22.81
23.58
24.38
25.03
27.03
29.52
Foreign trade
Exports
€ bn
13.52
13.77
14.03
14.32
15.01
16.51
17.38
Imports
€ bn
14.50
14.50
14.56
14.67
14.72
16.49
17.56
Balance
€ bn
-0.98
-0.73
-0.53
-0.35
0.29
0.02
-0.18
Prices
CPI - average inflation rate
%
2.3
0.0
0.7
0.2
0.1
2.9
2.7
PPI - industry - average
%
3.7
1.8
0.4
-0.9
-2.4
2.5
4.4
Employment
Registered unemployment
%
15.0
11.9
10.8
9.9
9.6
8.7
7.9
Average monthly gross wage
685
716
765
818
858
926
1,004
Exchange rates
LVL/USD average
0.545
0.531
-
-
-
-
-
LVL/EUR average - pegged rate
0.7
0.7
-
-
-
-
-


Source: Eurostat, Central Statistics Bureau of Latvia, IMF, 2017-2018



KEY SECTORS


Agriculture
The agricultural sector contributes 3.4% to the GDP and employs 7.3% of the active population (World Bank). It is dominated by cattle breeding and dairy farming, in addition to the production of grain cereals (barley, wheat, rye, oats), sugar beets, potatoes and vegetables. Apart from timber, which is largely exported, Latvia has almost no natural resources. The country has to import all its energy products, mainly from Russia. Fishing and forestry are also important components of the primary sector. Almost 39% of Latvia’s territory is destined to agricultural use. Since the early 90s, the structure of land management changed significantly, with the liquidation of collective farms in favour of household farms and – to a greater extent - of private farms, which currently dominate the country’s rural sector. Nevertheless, competitiveness of agriculture in Latvia is still low compared to other EU countries.

The industrial sector contributes to 19.5% of the GDP and employs almost one-fourth of the active workforce (23.8%). The construction, metallurgy, industrial food-processing, and mechanical engineering sectors are booming. Latvia is well-known as an important producer of railway equipment, radios, refrigerators, medicines, timber and steel by-products. The manufacturing sector is estimated to account for 10.6% of total GDP.

The Latvian economy is driven by the services sector which contributes to 65% of the GDP and employs 68.5% of the active population. Thanks to its attractive fiscal regulation, Latvia has developed a large financial services sector. Nonetheless the corporate tax rate, which was one of the lowest in the EU, has been raised to 20% as of 2018. Transportation and ICT are also important sectors for the country’s economy. The latter was estimated to contribute to 4% of the Latvia’s GDP in 2017, with more than 6,200 companies operating in the sector.


Fisheries

Latvia’s fishing fleet is made up of around 900 vessels. The country has a long tradition of fishing, which began during Soviet times. Traditionally, fish such as salmon and trout are predominantly caught. However, in recent years, the government has taken action to protect valuable fish stocks and various fish farms have been set up.


Forestry & Wood Products

Forest cover 44% of the national territory, Latvia has one of the richest forest resources in Europe. These industries contribute approximately 20.4% of GDP of the manufacturing industry. This is one of the main reasons Latvia has a significant export industry; wood products account for one third of total exports.


Food Processing & Beverages

Almost a quarter of the total manufacturing turnover is accounted for the food industry which is one of Latvia’s richest industries. The food processing industry covers 29% of Latvia’s industrial capacity.
75% of the products are sold within Latvian borders, the food processing industry is therefore the least-exported industry in Latvia. The main sub-industries are milk processing, drinks, fish processing and meat processing. The most important benefit of Latvia’s food processing and beverage sector include accessibility of high-quality raw materials, stable domestic demand, price competitiveness within western markets and high product acknowledgment in the Russian market.


ICT

The IT industry is Latvia’s fastest growing industry sector with an annual growth of 20-30%. In recent years exports from IT sector have risen rapidly, growing annually by approximately 15%. The industry has benefited from having a well-qualified workforce that has gained expertise in IT. In addition the mobile industry has developed which is due to expertise in IT industry. Latvian companies have benefitted from outsourcing opportunities from large IT firms such as IBM, Microsoft, and Unisys, and various Latvian companies have been acquired by companies such as Exigen, TietoEnator.


EXPORTS & IMPORTS


Latvian exports contribute to nearly a third of GDP.


2017 export and import data:




Main import partners:
Lithuania – 17.6%
Germany – 11.7%
Poland – 8.7%
Estonia – 7.6%
Russia - 7.1%
Netherlands - 4.2%


Main export partners:
Lithuania – 15.8%
Russia – 14%
Estonia – 10.9%
Germany – 6.9%
Sweden – 5.7%
UK – 4.9%


Latvia external trade - 2015




See references for our track record in Latvia.





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