Latvia: GDP declines at a milder rate in Q4
Economy remains in decline in Q4: GDP contracted by 0.4% year on year in the fourth quarter, an improvement from the 1.0% contraction logged in the third quarter. On a seasonally adjusted quarter-on-quarter basis, economic activity flatlined in Q4, improving slightly from the previous quarter’s 0.2% decrease and marking the best result since Q3 2023. In 2024 as a whole, the economy contracted 0.4%, in sharp contrast to 2023’s 2.9% rise.
Domestic momentum remains subdued: Household spending growth fell to 0.2% in Q4, marking the weakest expansion in a year (Q3: +0.9% yoy). Public spending growth was the slowest since Q2 2023, expanding 6.1% (Q3: +7.7% yoy). Moreover, fixed investment contracted 9.2% in Q4, marking the worst result since Q2 2016 (Q3: -4.1% yoy).
On the external front, exports of goods and services stabilized year on year in the final quarter, marking a two-year high (Q3: -0.4% yoy). In addition, imports of goods and services rebounded, growing 0.3% in Q4 (Q3: -0.3% yoy).
Recovery in 2025: The economy should return to growth in 2025. The ECB’s monetary policy loosening cycle and stronger EU demand should underpin an acceleration in private spending growth plus rebounds in fixed investment and exports. That said, government spending is set to lose steam, and an EU–U.S. trade war poses a downside risk to overall growth.
Panelist insight: EIU analysts said:
“The economy is poised to return to growth in 2025 […]. We expect the labour market to remain tight in the forecast period, upholding domestic demand, further strengthened by the continuation of energy support measures and the ongoing loosening of monetary policy by the ECB. Steady disbursement of EU funds will support government spending and investment projects, while cheaper borrowing should enable an acceleration in credit growth.”