Finance Ministry: Latvia's GDP to Grow 2.4% This Year, but 2027 Budget Faces a €117.7 Million Gap

Latvia's Finance Ministry (FM) announced on 6 November that it expects gross domestic product (GDP) to grow by 2.4% this year and by 1.9% next year. At the same time, the ministry's updated calculations show that fiscal space for the 2027 state budget — the room available for new spending — is negative, at €117.7 million. This means spending will have to be cut or revenue raised when the budget is drafted.

Growth forecasts

Compared with the indicative assessment prepared in early June, this year's forecast was raised by 0.4 percentage points. The ministry attributes this to better results in the first half of the year. Forecasts for later years were trimmed: 1.9% growth is projected for 2027 and 2–2.4% annually for 2028–2030. The FM takes a more cautious view of future development because of high external uncertainty and rising energy prices.

Budget challenges

The negative fiscal space is set to reach €336 million in 2028, €409.5 million in 2029 and €478.8 million in 2030. These figures exclude decisions adopted by the government and the Saeima (parliament) up to 4 November without a funding source; financing them would require €425.6 million in 2027, €504.3 million in 2028, €581.4 million in 2029 and €689.5 million in 2030.

The general government budget deficit forecast for 2026 is unchanged at 2.9% of GDP. Under unchanged policy, it would reach 4.2% in 2027 and 5.4% in 2028, then 4.5% in 2029, before falling to 2.7% in 2030. The calculations assume annual defence funding of 5% of GDP, which can also cover construction costs of the Sēlija training range.

The FM stresses that the negative fiscal space indicates the scale of budget adjustment needed, not a decision already taken to cut spending or change taxes.

Inflation, wages and debt

The average inflation forecast for 2026 was lowered by 0.2 percentage points to 3.4%, as food prices stabilised. Inflation is projected at 3.7% next year and 2.9% in 2028. Average gross monthly wages are forecast to reach €1,906 in 2027 and €2,361 in 2030, while unemployment should be 6.8% next year and 6.1% in 2030. Government debt will be 47% of GDP this year and stabilise at around 53% from 2029.

The report is expected to be reviewed by the Cabinet of Ministers soon. The forecasts were approved on 10 September by the Fiscal Discipline Council.