Bank of Latvia Cuts GDP Growth Forecast for 2026 to 2%

Updated economic projections show slower growth

On Tuesday, June 16, the Bank of Latvia released its revised macroeconomic forecasts, reducing the GDP growth projection for this year from the previously estimated 2.8% to 2%. Uldis Rutkaste, head of the Monetary Policy Department, stated that the revision is due to external environment shocks.

Forecast changes for upcoming years

The 2027 GDP growth forecast was also cut from 2.9% to 2.4%, while the 2028 projection dropped from 3.2% to 3%. Central bank experts note that external shocks, including geopolitical conflicts, are weakening external demand and increasing caution among consumers and investors.

Investments and costs

On a positive note, the Bank of Latvia highlights investments in military and dual-use goods production, as well as significant state projects, which help maintain moderate growth. Hostilities in the Middle East are driving up costs for transportation, fuel, packaging, and other raw materials. Companies are currently absorbing these costs through profit margins, but part of the increase will materialize in subsequent periods.

Labor market and wages

The labor market remains tight, although slower economic growth is slightly reducing labor demand. The unemployment forecast has been slightly raised: 6.7% by end-2026, 6.5% by end-2027, and 6.3% by end-2028 of the economically active population. Wage growth is projected at 7.4% in 2026, 7.3% in 2027, and 7.5% in 2028—a slightly slower pace than previously expected.

Consumer recovery postponed

A faster recovery in private consumption, previously anticipated, has been postponed again due to geopolitical turmoil, although household savings help cushion waves of caution.