Bank of Latvia Lowers GDP Forecast; Growth This Year at 2%

The Bank of Latvia has revised its economic growth forecasts. For this year, GDP growth is projected at 2%. The 2027 forecast has been reduced from 2.9% to 2.4%, and for 2028 from 3.2% to 3%. The central bank notes that external shocks, including hostilities in the Middle East, are worsening the economic outlook. They weaken foreign demand and increase caution among consumers and investors.

However, investments in military and dual-use goods production, as well as other major state projects, are becoming a growing support for growth. As a result, growth in the coming years will be slower but still positive.

Due to the conflict in the Middle East, costs for transport, fuel, packaging, and other items are rising. Currently, businesses are largely absorbing these costs from their profit margins and previously accumulated stocks; part of the burden will shift to the next procurement phase.

Accumulated savings will help mitigate new waves of caution, thus maintaining moderate private consumption growth, although a faster recovery is being postponed due to uncertainty.

Investment growth is slowing, but overall it will remain at last year's high level. In 2028, investments could even strengthen, driven by military production, housing construction, and government investment plans.

The labor market remains tight, though weaker economic growth has slightly reduced labor demand. The unemployment forecast has been slightly raised. Wage growth will remain strong but slower than previously predicted.

Specific indicators: unemployment rate at end-2026 will be 6.7%, end-2027 – 6.5%, end-2028 – 6.3%. Gross wage growth: 2026 – 7.4%, 2027 – 7.3%, 2028 – 7.5%.