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The rate of economic growth in Latvia, in the years of 2011-2012 was 5%, which was one of the highest indicators not only among CEE countries, but also in the entire European Union. In contrast to the other CEE economies, GDP growth in Latvia began to gradually slow down at the end of 2013 and the beginning of 2014. In Latvia, the decrease was relatively small and the growth stood at a similar rate to the average in the region by 3.7% in 2013 and in the first quarter of 2014.

Because of the different structures in the Baltic countries, the shape of path of growth had differences, in comparison to the other countries in the region, in the recent years. Since 2011, Latvia very quickly began to grow domestic demand, both consumption and investment, which was in large part the result of a strong rebound of the recession that took place in those countries, following the global financial crisis. In 2008-2009, the GDP decreased in Latvia by 24%, which meant the largest scale of decline in Europe.[1]

In addition, in 2011-2012 we have seen strong growth in the exports. On one hand, this resulted with less exposure to the Baltic countries, plunged at that time in the Eurozone crisis and on the other, because of the other larger CEE economies, which have ties with the markets of Eastern Europe, especially Russia, which experienced the economic recovery.

This situation has changed in 2013, as far as domestic demand continued to grow relatively fast but slowly decreases the pace – especially consumer demand, driven by the rapid growth of wages. The growth of investment clearly decreased, which was the result of the ended projects co-financed from the European funds. Moreover, the uncertainty about the membership in the Eurozone, it could clearly be seen as a fall of the export growth.

The main cause of decline in the growth of exports in 2013 and the 4th quarter of 2014 was similar to that, which was responsible for its earlier growth, it means exposure to eastern European countries where economic growth already weakened in 2013. In the export of Latvia, the post-soviet union countries had the largest part rather much than all the EU countries. In 2013, in Latvia exports decreased to the eastern countries.

Although, in the first months of 2014, slight acceleration was observed in exports of Latvia to Russia and Ukraine, however it helped merely to reduce the scale of its inheritance and had no effect to stop the negative trends in foreign trade. The volume of trade constantly declined with the EU countries, mainly among the Baltic countries. It doesn’t seem to increase the trade with the countries of the former USSR, as they were stable in face of economic crisis, which likely influences to the economies of Russia and Ukraine.

[1] Polish National Bank, The economic situation in the countries of Central and Eastern Europe, 2014