Economic trends
Since its independence from the former Soviet Union, Latvia has implemented market-oriented reforms. The country's economy has since then experienced a very good performance due to a constant growth in domestic consumption and the contribution of foreign investment. In addition, Latvia became a member of the EU on May 1st, 2004, and has benefited from large European subsidies (EUR 1.8 billion between 2004 and 2008).
However, the country's economy showed signs of overheating between 2005-2007 and subsequently was strongly affected by the financial crisis of late 2008, its GDP had dropped of 17% and the unemployment rate reached 17% in 2010. After three years of recession, which placed the economy and the country's social fabric in jeopardy, the Latvian economy returned to strong growth in 2011. The deep structural reforms undertaken as part of the assistance program provided jointly by the IMF and EU in late 2008 enabled Latvia to boost its exports, partly because of improved competitiveness. Latvia has a well trained and inexpensive workforce .
Latvia's goal is now to join the eurozone in 2014. In the currently unfavorable European context, the country needs to continue working towards the consolidation of public finances and a return to price stability. Unemployment is expected to remain high in 2012 (around 16%) and informal economy still represents over 30% of GDP. The government's target of a growth rate of 4% in 2012 appears ambitious given the deteriorating external environment of Latvia and the current rate of price increase.
Main branches of industry
The agricultural sector contributes about 4% to the GDP and employs 7.7% of the population. It is dominated by cattle breeding, in addition to the production of grain, 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. Fishing and forestry are also important parts of its primary sector.
The industrial sector contributes about 24% to the GDP and employs about 28% of the workforce. The construction, metallurgy, industrial food-processing, and mechanical engineering sectors are booming. Latvia is well known as an important producer of railway equipment, radios, refridgerators, medication, wood and steel products.
The Latvian economy is driven by the services sector which contributes more than 72% to the GDP and employs over 60% of the Latvian active population. Thanks to attractive fiscal regulation, Latvia has developped a large financial services sector. The country offers a corporation tax rate of 15%, on of the lowest within the European Union.
International trade
The Latvian market is open and competitive. The EU, of which Latvia has been a member since 2004, is its largest trade partner, followed by Russia.
With its 530 km-long Baltic coastline, Latvia is bordered by Belarus and Russia to the east, Estonia to the north and Lithuania to the south. Its position allows it to function as a bridge between the two major economic areas of the EU and the CIS.
In terms of foreign trade, Latvia's main customers are Russia, Lithuania, Estonia and Germany. Its main suppliers are Lithuania, Germany, Russia, Poland and Estonia. The country exports mainly wood and coal, mineral fuels & oils, iron and steel, machinery and electrical and electronic equipment. Imports, which dropped by 50% since the 2008 crisis, resumed in 2011. Key trading partners are Lithuania, Germany, Russia, Poland, Estonia, Sweden and Finland. Latvia mainly imports machinery, chemicals, fossil fuel and electricity and vehicles.
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Last updates: May 2012
