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The Latvian economy generally performed well despite the Covid-19 pandemic in 2020. Although several vaccination studies have reached the final stage and even applied for approval, the pandemic will certainly be effective in part of 2021. How much will Latvia’s economy grow in 2021? How will it perform? Details on the surprising growth forecasts are in our article.
The Performance of the Latvian Economy in 2020
Before mentioning the economic growth forecasts for 2021, it would be better to make a general evaluation for 2020. It should be underlined that the latest data for 2020 have not been announced yet.
Looking at the Latvian economy, it can be stated that the Covid-19 pandemic has affected the economy as it has done in the whole world, especially since March. However, thanks to the policy followed by the Latvian government during this period, it can be said that the first wave was overcome with the least damage.
Looking at the growth figures in 2020, it will be seen that there was a 7.5% shrinkage in the economy in June. However, the rate of shrinkage in the figures announced in September decreased to 4.7%. In other words, it can be clearly stated that there has been some recovery in the economy in the period from June to September.
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The Effect of Pandemic on the Latvian Economy
The reason for this recovery is the fact that Latvia has taken on time restriction decisions due to the Covid-19 pandemic and that it has loosened them also on time. Although all these decisions caused shrinkage in the economy, it can be said that these shrinkage rates are at a reasonable level compared to the other economies in the world. During the pandemic period, the Latvian economy, having the right strategy, has been able to recover without being much affected like other countries.
The prediction that the Latvian economy will survive in 2020 with a shrinkage of only 4.7% has already been mentioned. When looking at other variables in the economy, it will be seen that the shrinkage experienced has affected other areas as well.
How Much Will the Latvian Economy Grow in 2021?
Previously announced predictions for the Latvian economy have been updated after the pandemic. The final chart that will be formed with the latest data for 2020 and the predictions for the coming years has been renewed a while ago.
It is predicted that the economy has shrunk by 4.7% this year after the latest data for 2020. It is estimated that there has been a 10% loss in exports and investments during this period. Besides, the aids and supports provided by the government during the pandemic period have created an extra burden on public expenditures. This will cause an average 3% increase in public expenditures.
Growth estimates for 2021 have also been updated. Accordingly, it is estimated that the Latvian economy will grow by approximately 5.1% in 2021. However, the issues such as how vaccination studies will result and how fast the vaccine will be inoculated will greatly affect the predictions here. Therefore, it should not be forgotten that these estimates may change in the future.
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How Will the Latvian Economy Perform in the Future?
Another figure that people are curious about in the Latvian economy is inflation. In 2020, annual inflation is estimated to be 0.2%. The reason for this is the decrease in service prices and the decrease in demand due to the pandemic. However, inflation is estimated to be 1.4% in 2021 and 1.8% in 2022. It is estimated that it will be fixed at 2% in the following years.
Another important data is the figures related to employment and unemployment. It is estimated that there will be a decrease of approximately 4.4% in employment due to the increase in the population and the pandemic. Accordingly, the unemployment rate will be 10.5% in 2020. This figure is slightly better than the previous figure which was 11.2%. It is predicted that unemployment will decrease to 9.8% in 2021.
The average monthly wage in Latvia is expected to be 1.065 Euros. It is estimated that this amount will increase by 3% in the following years. Accordingly, it can be said that the welfare level in the country will increase a little more.
Considering all these, it can be said that the economy will recover in the future and will improve even more. The policies implemented by the Latvian government and other conditions seem to be in line with this. It is stated that especially the recent emphasis on policies that attract investors and entrepreneurs will cause the Latvian economy to come to a better position than expected in a short time. Time will show how much of these predictions will come true.
Igors Krumins continues his activities as a commercial and international lawyer within the body of “Jurmala Invest”. He has more than 10 years of experience, especially in the investment sector, and has provided consultancy services to numerous companies with his legal expertise. He successfully completed his undergraduate studies at Baltic International Academy and graduate studies at Latvijas Universitate. Apart from his native Latvian language, he can also speak Russian and English fluently.