The Latvian Ministry of Economy forecasts that the national economy will grow by an average of 4.2% per year between 2022 and 2030. Between 2031 and 2040, the average growth of the national economy is expected to reach 3% per year, according to the departmental labor report. medium and long term outlook of the market.
The report explains that the Covid-19 pandemic has had a strong and lasting effect on the socio-economic situation around the world, including Latvia. The most significant effect of the Covid-19 restrictions has been for the accommodation, restaurant, arts, entertainment and leisure sectors. Additionally, Covid-19 restrictions have had a significant impact on aviation, ground transportation and rail transport companies.
Although in 2021 Latvia’s GDP slightly exceeded the level observed in 2019, economic activity in several sectors was found to be significantly below this level.
Given the situation in Europe and the vaccination coverage, the target scenario does not foresee any new significant Covid-19 restrictions. Nevertheless, great uncertainty remains about the situation this fall, as well as the possibility of new mutations of the virus and a new outbreak, notes the ministry.
The Ministry of Economy expects economic growth in 2022 to decline by around three percentage points due to geopolitical factors.
The ministry also notes in its report that due to Russia’s invasion of Ukraine, the geopolitical situation has deteriorated and there is now a high likelihood that war, sanctions and disruptions in the lines of supply will continue to affect economic development. In addition, residents’ consumption is expected to be affected, as will business investment and foreign trade. At the same time, the economic effect of the conflict is very unclear and will depend on the duration of the war and the political reactions.
Russia’s war in Ukraine does not affect all businesses equally. It has the most effect on companies that export/import and for which it is difficult to change/find new partners and markets. New and diversified markets for raw materials, the strengthening of the country’s energy independence and the refocusing of Russia towards richer Western markets will help to increase the future potential of the Latvian economy, underlines the ministry.
The medium-term GDP growth of the target scenario is expected to reach 4.2% per year between 2022 and 2030. The fundamental prerequisite for this is to balance the advantages on technological factors, production efficiency, innovations, as well as the ability to adapt and use opportunities. provided by global changes. In the long term perspective – 2031 to 2040 – the annual growth rates of the economy will become slower and will remain below 3%.
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The ministry’s report also mentions that by 2040, there will be a change in the structure of the sectors of the national economy compared to the current situation in favor of sectors with higher added value. The percentage of major commercial service sectors could increase by 2040. The percentage of IT and industrial sectors in the national economy will increase. The percentage of agriculture, transport, financial services and the utilities sector could increase slightly.
The processing industry is expected to maintain faster growth rates than the average for the national economy. At the same time, economic growth is not so much related to a large and material-intensive increase in production volumes as to the use of modern technological processes, digitization and optimization of production .
The Latvian Ministry of Economy predicts that faster development is expected in the high and medium technology sectors. Relatively rapid rates of development are expected for Latvia’s largest processing industry – woodworking.
One of the fastest growth rates in the medium to long term is expected for information and communication technology services.
This is due to the growing demand for digitization of production and other processes, as well as global trends in IT development. Relatively rapid growth rates are expected for the accommodation and food service sectors, which continue to recover from the negative influence of Covid-19.
In the construction sector, according to the Ministry of Economy, rapid growth is expected in the medium term, which will benefit both from large investment projects and from the need to gradually restore the existing residential fund.
The development of the transit sector will remain slow, due to the need to seek new freight and access routes to replace Russian petroleum products and coal. The Ministry of Economy foresees an important role for the Rail Baltica project in the future, mainly for the railway sector.
The ministry foresees the development of domestic demand-oriented sectors – commerce and other commercial services. Development will be closely linked to private consumption and demand in other sectors of the national economy.
