The European Commission (EC) forecasts 1 percent growth for Latvia’s economy this year, according to its autumn economic outlook published on Monday.
Valdis Dombrovskis (New Unity), the European Commission’s Executive Vice-President for An Economy that Works for People, describes the projection as moderate growth. He noted that the outlook is slightly better than in the spring. For comparison, Estonia’s economy is expected to grow by 0.6 percent this year, while Lithuania’s is forecast to expand by 2.4 percent.
In Latvia, both private and public investment are expected to grow despite geopolitical uncertainties, the EC says.
GDP growth is projected to rise to 1.7 percent in 2026 and 1.9 percent in 2027. According to Dombrovskis, the main drivers will be stronger private consumption supported by real wage growth and increased investment, particularly due to European Union (EU) funding.
Inflation is expected to edge up as the deflationary impact of energy prices fades, while services and food price inflation will remain elevated.
Inflation is forecast to reach 3.6 percent in 2025, fall to 2.2 percent in 2026, and rise slightly to 2.4 percent in 2027. The general government deficit is expected to widen to 3.1 percent of GDP in 2025 due to weaker revenue growth and rising current expenditures, and to reach 4.3 percent in 2027, mainly because of higher defense spending.
Private consumption and investment will support growth in 2026 and 2027, the EC forecasts. In 2025, the economy is expected to rebound from the stagnation recorded in 2024. Real disposable income and private consumption will be strengthened by solid wage growth. However, continued geopolitical uncertainty is likely to encourage household saving. After a significant increase in 2024, the savings rate is projected to rise further to 6.4 percent in 2025 – above pre-pandemic levels.
As a result, private consumption is expected to recover only gradually in the second half of 2025 before accelerating in 2026 and 2027.
After strong performance in the first half of 2025, investment is projected to remain stable for the rest of the year, supported by EU fund inflows and higher defense expenditure, and to remain supportive in 2026 and 2027.
Private investment is forecast to recover in 2025 after a sharp decline in 2024, aided by solid corporate lending and lower borrowing costs.
The unemployment rate is expected to fall to 6.8 percent in 2025 and continue declining in 2026 and 2027 as labor demand improves.
Inflation, measured by the EU’s Harmonized Index of Consumer Prices (HICP), is also forecast to reach 3.6 percent in 2025, before dropping to 2.2 percent in 2026 and rising to 2.4 percent in 2027.
The general government deficit is projected at 3.1 percent of GDP in 2025, up from 1.8 percent in 2024. It is expected to increase further to 3.5 percent in 2026 and 4.3 percent in 2027.
The EC’s autumn outlook projects EU real GDP growth of 1.4 percent in both 2025 and 2026, and 1.5 percent in 2027. The euro area is expected to follow a similar path, with real GDP forecast to grow by 1.3 percent in 2025, 1.2 percent in 2026 and 1.4 percent in 2027. Inflation in the euro area is projected to continue easing, falling to 2.1 percent in 2025.
Dombrovskis said the figures demonstrate the resilience of the EU economy in a challenging environment marked by trade tensions and geopolitical risks. At the same time, he stressed the need to intensify efforts to strengthen Europe’s competitiveness, reduce administrative burdens and boost economic growth.
Source: BNS
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