Latvia’s Ministry of Economics predicts the national economy will increase by an average of 4.2% a year between 2022 and 2030. Between 2031 and 2040 the average growth of the national economy is expected to reach 3% annually, according to the ministry’s report on the labour market’s medium and long-term outlooks.
The report explains that the Covid-19 pandemic has had a strong and lasting effect on the socioeconomic situation globally, Latvia included. The most significant effect from Covid-19 restrictions was for accommodation, catering, art, entertainment and leisure sectors. Additionally, Covid-19 restrictions have had a significant impact on aviation, land transportation and railway transport companies.
Although in 2021 Latvia’s GDP slightly exceeded the level observed in 2019, economic activity in multiple sectors turned out significantly below this level.
Considering the situation in Europe and vaccination coverage, the target scenario does not provide any new and significant Covid-19 restrictions. Nevertheless, high uncertainty remains about the situation this autumn, as well as the possibility of new mutations of the virus and a new outbreak, the ministry notes.
The Ministry of Economics predicts economic growth in 2022 will go down by about 3% due to geopolitical factors.
The ministry also notes in its report that due to Russia’s invasion of Ukraine the geopolitical situation has worsened and now there is a high probability that the war and sanctions and supply line interruptions will continue affecting economic development. Additionally, it is expected that residents’ consumption will be affected, as will investments of businesses and foreign trade. At the same time, the economic effect from the conflict is very unclear and will depend on the length of the war and political reactions.
Russia’s war in Ukraine does not affect all companies equally. It has the biggest effect on companies that deal in export/import and for which it is hard to change/find new partners and markets. New and diversified markets for raw materials, enhancement of the country’s energy independence and refocusing from Russia towards wealthier western markets will help increase the future potential of Latvia’s economy, stresses the ministry.
The target scenario’s medium-term GDP growth is expected to reach 4.2% annually between 2022 and 2030. The fundamental pre-condition for this is balancing advantages on technological factors, production efficacy, innovations, as well as the ability to adapt and use the opportunities provided by global changes. In the long-term perspective – 2031 to 2040 – economy’s annual growth rates will become slower and will stay within 3%.
The ministry’s report also mentions that until 2040 there will be a change in the structure of sectors of the national economy when compared to the current situation in favour of sectors with higher added value. The percentage of main direction commercial service sectors may increase until 2040. The percentage of IT and industrial sectors in the national economy will increase. The percentage of agriculture, transport, financial services and public services sector may increase slightly.
It is expected the processing industry will maintain more rapid growth rates than average in the national economy. At the same time, economic growth is not so much related to extensive and material-intensive increase of production volumes as it is related to the use of modern technological processes, digitisation and optimisation of production.
Latvia’s Ministry of Economics predicts that more rapid development is expected in high and moderately high technologies sectors. Comparatively rapid development rates are expected for the biggest processing industry in Latvia – woodworking.
One of the most rapid growth rates in both medium and long-term perspectives is expected for the information and communication technologies services.
This is because of the growing demand for digitisation of production and other processes, as well as global IT development trends. Comparatively rapid growth rates are expected for the accommodation and catering sectors, which continue recovering from the negative Covid-19 influence.
In the construction sector, according to Ministry of Economics, rapid growth is expected in the medium-term, which will benefit from both major investment projects and the need to gradually restore the existing residential fund.
Development of the transit sector will remain slow, which is because of the need to search for new freight and access roads to replace Russian petrol products and coal. Ministry of Economics predicts a big role for Rail Baltica project in the future, mostly for the railway sector.
The ministry predicts the development of sectors focused on domestic demand – trade and other commercial services. Development will be closely tied to private consumption and demand in other sectors of the national economy. (BNN/Business World Magazine)
