The economy of Latvia is an open economy in Europe and is part of the European Single Market. Latvia is a member of the World Trade Organization (WTO) since 1999,^[22] a member of the European Union since 2004, a member of the Eurozone since 2014 and a member of the OECD since 2016.^[23] Latvia is ranked the 14th in the world by the Ease of Doing Business Index prepared by the World Bank Group.^[24] According to the Human Development Report 2011, Latvia belongs to the group of very high human development countries.^[25] Due to its geographical location, transit services are highly developed, along with timber and wood processing, agriculture and food products, and manufacturing of machinery and electronic devices.

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Economy of Latvia

Riga with its Central Market in the view
Currency	Euro (EUR, €)
Fiscal year	Calendar year
Trade organisations	EU, OECD and WTO
Country group	Developed/Advanced[1] High-income economy[2]
Statistics
Population	1,883,000 (2023)[3]
GDP	$40 billion (nominal, 2022 est.)[4] 70 billion (PPP, 2022 est.)[4]
GDP rank	106th (nominal, 2022) 100nd (PPP, 2022)
GDP growth	4.3% (2018) 2.2% (2019) −3.6% (2020) 5.2% (2021e)[4]
GDP per capita	$25,100 (nominal, 2023 est.)[4] $37,300 (PPP, 2022 est.)[4]
GDP per capita rank	48rd (nominal, 2022) 49th (PPP, 2022)
GDP by sector	agriculture: 3.9% industry: 22.4% services: 73.7% (2017 est.)[5]
Inflation (CPI)	0.6% (2020 est.)[4] 2.7% (2019)[4] 2.6% (2018)[4]
Population below poverty line	25.5% (2015)[5] 27.3% at risk of poverty or social exclusion (AROPE, 2019)[6]
Gini coefficient	35.2 medium (2019, Eurostat)[7]
Human Development Index	0.863 very high (2021)[8] (39th) 0.792 high (33rd) (2021)[9]
Labour force	974,318 (2019)[10] 76.8% employment rate (Target: 73%; 2018)[11]
Labour force by occupation	agriculture: 7.7% industry: 24.1% services: 68.1% (2016 est.)[5]
Unemployment	8.8% (August 2020)[12] 17.6% youth unemployment (15 to 24 year-olds; July 2020)[13]
Average gross salary	€1,525 monthly (August, 2023)
Average net salary	€1,114 monthly (August, 2023)
Main industries	processed foods, processed wood products, textiles, processed metals, pharmaceuticals, railroad cars, synthetic fibers, electronics
External
Exports	$12.84 billion (2017 est.)[5]
Export goods	foodstuffs, wood and wood products, metals, machinery and equipment, textiles
Main export partners	Lithuania(+) 15.8%  Russia(+) 14%  Estonia(+) 10.9%  Germany(+) 6.9%  Sweden(+) 5.7  United Kingdom(+) 4.9%  Poland(+) 4.3%  Denmark(+) 4.1% (2017)[5]
Imports	$15.79 billion (2017 est.)[5]
Import goods	machinery and equipment, consumer goods, chemicals, fuels, vehicles
Main import partners	Lithuania(+) 17.6%  Germany(+) 11.7%  Poland(+) 8.7%  Estonia(+) 7.6%  Russia(+) 7.1%  Netherlands(+) 4.2%  Finland(+) 4.2%  Italy(+) 4% (2017)[5]
FDI stock	$18.84 billion (31 December 2017 est.)[5] Abroad: $3.402 billion (31 December 2017 est.)[5]
Current account	−$231 million (2017 est.)[5]
Gross external debt	$40.02 billion (31 March 2016 est.)[5]
Public finances
Government debt	36.9% of GDP (2019)[14] €11.245 billion (2019)[14]
Budget balance	€63 million deficit (2019)[14] −0.2% of GDP (2019)[14]
Revenues	38.7% of GDP (2019)[14]
Expenses	38.9% of GDP (2019)[14]
Economic aid	€4.6 billion from European Structural and Investment Funds (2007–2013)[15] €5.63 billion from European Structural and Investment Funds (2014–2020)[16]
Credit rating	Standard & Poor's:[17] A− (Domestic) A− (Foreign) AAA (T&C Assessment) Outlook: Stable[18] Moody's: A3 Outlook: Stable[19] Fitch: A− Outlook: Stable[20] Scope: A− Outlook: Stable[21]
Foreign reserves	$4.614 billion (31 December 2017 est.)[5]
All values, unless otherwise stated, are in US dollars.

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Latvia's economy has had rapid GDP growth of more than 10% per year during 2006–07, but entered a severe recession in 2009 as a result of an unsustainable current account deficit, collapse of the real estate market, and large debt exposure amid the softening world economy. Triggered by the collapse of Parex Bank, the second largest bank, GDP decreased by almost 18% in 2009,^[26] and the European Union, the International Monetary Fund, and other international donors provided substantial financial assistance to Latvia as part of an agreement to defend the currency's peg to the euro in exchange for the government's commitment to stringent austerity measures. In 2011 Latvia achieved GDP growth by 5.5%^[27] and thus Latvia again was among the fastest growing economies in the European Union. The IMF/EU program successfully concluded in December 2011.^[28]

Privatization is mostly complete, except for some of the large state-owned utilities. Export growth contributed to the economic recovery, however, the bulk of the country's economic activity is in the services sector.

For centuries under Hanseatic and German influence and then during its inter-war independence, Latvia used its geographic location as an important east–west commercial and trading centre. Industry served local markets, while timber, paper and agricultural products were Latvia's main exports.

Prior to World War I, Latvia was an advanced manufacturing hub within the Russian Empire, primarily serving the Russian market.^[29] After attaining independence in 1918, Latvia lost its status as an advanced manufacturing hub.^[29] Latvia sought in the interwar period to become an international exporter of food and to re-industrialize.^[29] Latvia experienced growth in GDP per capita during the interwar period, although some economic historians have argued that there was stagnation in the period of the authoritarian Karlis Ulmanis regime (1934–1940).^[29]

After reestablishing its independence, Latvia proceeded with market-oriented reforms, albeit at a measured pace. Its freely traded currency, the lat, was introduced in 1993 and held steady, or appreciated, against major world currencies. Inflation was reduced from 958.6% in 1992 to 25% by 1995 and 1.4% by 2002.

After contracting substantially between 1991 and 1995, the economy steadied in late 1994, led by a recovery in light industry and a boom in commerce and finance. This recovery was interrupted twice, first by a banking crisis and the bankruptcy of Banka Baltija, Latvia's largest bank, in 1995 and second by a severe crisis in the financial system of neighbouring Russia in 1998. After 2000, Latvian GDP grew by 6–8% a year for 4 consecutive years. Latvia's state budget was balanced in 1997 but the 1998 Russian financial crisis resulted in large deficits, which were reduced from 4% of GDP in 1999 to 1.8% in 2003. These deficits were smaller than in most of the other countries joining the European Union in 2004.^{[citation needed]}

Until the middle of 2008, Latvia had the fastest developing economy in Europe. In 2003, GDP growth was 7.5% and inflation was 2.9%. The centrally planned system of the Soviet period was replaced with a structure based on free-market principles. In 2005, private sector share in GDP was 70%.^[30] Recovery in light industry and Riga's emergence as a regional financial and commercial centre offset shrinkage of the state-owned industrial sector and agriculture. The official unemployment figure was held steady in the 7%–10% range.

Privatisation in Latvia is almost complete. Virtually all of the previously state-owned small and medium companies have been privatized, leaving only a small number of politically sensitive large state companies. In particular, the country's main energy and utility company, Latvenergo remains state-owned and there are no plans to privatize it. The government also holds minority shares in Ventspils Nafta oil transit company and the country's main telecom company Lattelecom but it plans to relinquish its shares in the near future.

Foreign investment in Latvia is still modest compared with the levels in north-central Europe. A law expanding the scope for selling land, including land sales to foreigners, was passed in 1997. Representing 10.2% of Latvia's total foreign direct investment, American companies invested $127 million in 1999. In the same year, the United States exported $58.2 million of goods and services to Latvia and imported $87.9 million. Eager to join Western economic institutions like the World Trade Organization, OECD, and the European Union, Latvia signed a Europe Agreement with the EU in 1995 with a 4-year transition period. Latvia and the United States have signed treaties on investment, trade, and intellectual property protection and avoidance of double taxation.

Average wages are higher in Riga and Ventspils and their surroundings, with inland border regions lagging behind, mainly the region of Latgale.

• Baltic Tiger
• Baltic states housing bubble
• Economy of Europe