2025 forecast to be a year of modest growth and modest inflation in Latvia / Article

“Although Latvia’s economy saw a slight slowdown last year, by the end of the year the first signs of recovery were already visible. This year, growth is expected to pick up, but the recovery is being held back by the growing uncertainty and trade policy uncertainties,” said Widgren.

“If Europe and the US agree to maintain or reduce tariff levels, economic activity may turn out to be stronger than currently forecast. This uncertainty has a particular impact on the investment sector, although public investment is developing relatively favourably. Overall, we see the economy moving towards recovery, but the pace is still cautious,” added Widgren.

In the coming years, the economist forecasts broader growth than in recent years, as the economy will be supported by rising private consumption, public investment and – although limited – modest export growth. He points out that the recovery in Latvia has already begun and will continue in 2026.

OP Financial Group forecasts the fastest GDP growth this year will be in Lithuania (2%), followed by Latvia with 1.5% and Estonia with 1% growth. Overall, Lithuania is in the best economic position, with growth largely driven by strong manufacturing and exports to the Central European countries, while in Latvia and Estonia manufacturing has been stagnating for some time and the range of export markets is narrower than for Lithuania. 

The labour market has remained relatively strong across the Baltic region, supporting the resilience of the economy. Moreover, Latvia has the lowest unemployment rate among the Baltic countries. Compared to Estonia, where consumer confidence is low, Latvia is experiencing stronger growth in private consumption.

All Baltic countries are currently spending heavily on defence, and this spending is expected to continue to grow in the coming years. Compared to other European countries, the Baltics are in a stronger position due to their relatively low public debt levels, which enables them to increase defence spending.

The impact of the US-imposed tariff increases on Europe is likely to be relatively even, but some countries will be hit particularly hard. Italy, Ireland and Iceland are expected to experience the most negative effects, while Latvia and other countries in Eastern and Southeastern Europe are likely to be the least affected ones.

“The economic outlook for the European region remains clouded by several major risks – not only trade frictions and the tariff war, but also the geopolitical situation in general, including the prospects for a cessation of hostilities or a peace agreement in Ukraine,” says the economist.

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