Latvia – Economy Overview
Economic trends
After its independence from former Soviet Union, Latvia has successfully implemented market-oriented reforms. IMF noted that Latvia’s economic performance during past several years has been among the best within the EU accession countries The GDP growth rate was 8.6% in 2004 and 10.2% in 2005. It is estimated to have reached 11% in 2006. This good performance is mainly due to continuous growth in domestic consumption and inflow of foreign investment. IMF forecasts a GDP growth of 9% in 2007. Furthermore, Latvia became a member of the EU on the 1st of May 2004 and now benefits from European subsidies: 1.8 billion euros have been granted for the period 2004 to 2008. Latvia benefits from its skilled and cheap workforce. Two major weaknesses of the economy are: high trade deficit and huge external debt. Inflation remains around 6.5%, but the unemployment rate is high (+10%)
Main branches of industry
The agricultural sector contributes nearly 4% to the GDP and employs more than 15% of the population. The agriculture sector is dominated by animal breeding, besides producing grains, sugar beets, potatoes, and vegetables. Apart from timber, which is largely exported, Latvia has almost no natural resources. The country has to import all its energy products, mainly from Russia. The industrial sector contributes nearly 22% to GDP and employs about 40% of the workforce. Building & construction, metallurgy, food-processing, and mechanic engineering are booming sectors. Tourism has developed as a major source for foreign exchange earnings. The Latvian economy is driven by services sector which contributes nearly 74% to GDP. Almost all of the previously state-owned small and medium companies have been privatized; private sector now accounts for more than 75% of the GDP.
International trade
The Latvian market is open and competitive. The EU is Latvia’s largest trade partner. The share of foreign trade in country’s GDP was 78% in 2005. The top three export partners of Latvia are: Lithuania, Estonia, and Germany. The country mainly exports wood and charcoal, mineral fuels & oils, iron & steel, machinery, and electric & electronic equipment. The top three import partners are: Germany, Lithuania and Russia. Latvia mainly imports mineral fuels & oils, machinery, vehicles, electric equipment, and iron & steel.
