KEY ISSUES Context: Latvia’s economy continues to recover strongly as it joins the euro area. The output gap is now largely closed, and labor market conditions are tightening despite still high unemployment. The current account is close to balance, while inflation has fallen to near zero due...

This 2015 Article IV Consultation highlights that Latvia’s strong recovery has recently slowed in the face of sluggish growth in the euro area and deteriorating economic conditions in Russia amid rising geopolitical tensions. GDP growth decelerated to 2.4 percent in 2014 reflecting weak demand...

This Selected Issues paper examines the prospects for Latvia continuing to rapidly reduce its distance from the productivity frontier. It looks at the empirical record of countries that have in the past attained a similar relative level of income to that of Latvia at present, to gauge the...

Latvia has rebounded from the crisis, after successfully undertaking a difficult adjustment program. The recovery has been well balanced between external and domestic demand. The labor market is improving but unemployment is still high. Past consolidation efforts have brought down the fiscal...

This note presents estimates of potential growth and the output gap in Latvia. The estimates suggest that the output has marked below potential in the early 2000s but the output gap becomes positive and large after EU accession. With unemployment still well above its natural level, the output...

The Latvian economy contracted with significant disinflation against the backdrop of geopolitical headwinds. Persistent services inflation, driven by strong nominal wage growth amid tight labor markets, keeps core inflation elevated. Productivity growth has failed to match real wage increases,...

Latvia is facing an inflation shock, slow growth, and geopolitical challenges, while the long-term policy concern is to sustain the income convergence process. Headline inflation has surged over the past year in Latvia, measuring 12.3 percent y/y in May, while core inflation increased to 12.4...

The economy fared relatively well during the pandemic, but the war in Ukraine is another major shock. The key vulnerabilities are Latvia's significant reliance on imported gas from Russia until recently, the impact of high international energy prices on inflation and economic activity, and...