Economy of Latvia

The economy of Latvia is an open economy in Northern Europe and is part of the European Union's (EU) single market. Latvia is a member of the World Trade Organization (WTO) since 1999,[18] a member of the European Union since 2004, a member of the Eurozone since 2014 and a member of the OECD since 2016.[19] Latvia is ranked the 14th in the world by the Ease of Doing Business Index prepared by the World Bank Group,[20] According to the Human Development Report 2011, Latvia belongs to the group of very high human development countries.[21] 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.

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,[22] 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%[23] and thus Latvia again was among the fastest growing economies in the European Union. The IMF/EU program successfully concluded in December 2011.[24]

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.

Economy of Latvia
Riga, Latvia
CurrencyEuro (EUR)[1]
Calendar year
Trade organisations
EU, OECD and WTO
Statistics
GDPIncrease$34.286 billion (nominal, 2018 est.)[2]
Increase$57.332 billion (PPP, 2018 est.)[2]
GDP rank96th (nominal, 2018)
102nd (PPP, 2018)
GDP growth
3.0% (2015) 2.2% (2016)
4.5% (2017) 3.7% (2018f)[2][3]
GDP per capita
Increase$17,634 (nominal, 2018 est.)[2]
Increase$29,487 (PPP, 2018 est.)[2]
GDP per capita rank
50th (nominal, 2017)
49th (PPP, 2017)
GDP by sector
agriculture: 3.9%
industry: 22.4%
services: 73.7% (2017 est.)[3]
2.9% (2017 est.)[3]
0.1% (2016 est.)[3]
Population below poverty line
25.5% (2015)[3]
Negative increase 35.6 medium (2018, Eurostat)[4]
Labour force
0.990 million (2017 est.)[3]
Labour force by occupation
agriculture: 7.7%
industry: 24.1%
services: 68.1% (2016 est.)[3]
UnemploymentPositive decrease 7.4% (2018, Eurostat)[5]
Average gross salary
€1004, monthly (Q2, 2018)[6]
€743, monthly (Q2, 2018)[6]
Main industries
processed foods, processed wood products, textiles, processed metals, pharmaceuticals, railroad cars, synthetic fibers, electronics
Increase 19th (2019)[7]
External
ExportsIncrease€11.199 billion (2017)[8]
Export goods
wood and wood products, charcoal, electrical appliances and electrical equipment, vehicles and their parts, mineral products
Main export partners
 Lithuania 17.20%
 Estonia 12.12%
 Russia 8.06%
 Germany 7.35%
 Sweden 6.46%[9]
ImportsIncrease€9.557 billion (2017)[10]
Import goods
machinery and equipment, consumer goods, chemicals, fuels, vehicles
Main import partners
 Lithuania 18.78%
 Germany 10.95%
 Poland 9.52%
 Estonia 7.7%
 Russia 7.09%[11]
FDI stock
Increase$18.84 billion (31 December 2017 est.)[3]
Increase Abroad: $3.402 billion (31 December 2017 est.)[3]
Decrease -$231 million (2017 est.)[3]
Negative increase$40.02 billion (31 March 2016 est.)[3]
Public finances
Positive decrease36.3% of GDP (2017 est.)[3][note 1]
-0.5% (of GDP) (2017 est.)[3]
Revenues11.39 billion (2017 est.)[3]
Expenses11.53 billion (2017 est.)[3]
Economic aidrecipient: $0.1 billion (1995)
Foreign reserves
Increase $4.614 billion (31 December 2017 est.)[3]
Main data source: CIA World Fact Book
All values, unless otherwise stated, are in US dollars.
Labour productivity levels in Europe. OECD, 2015
Labour productivity level of Latvia is one of the lowest in EU. OECD, 2017[17]

Economic history

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. Conversely, years in the Russian Empire and the Soviet Union tended to integrate Latvia's economy with their markets and also serve those countries' large internal industrial needs.

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 1991–93, 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.

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%.[25] 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.

Economic contraction in 2008–2010

The Financial Crisis of 2008 severely disrupted the Latvian economy, primarily as a result of the easy credit bubble that began building up during 2004. The bubble burst leading to a rapidly weakening economy, resulting in a budget, wage and unemployment crisis.[26] Latvia had the worst economic performance in 2009, with annual growth rate averaging −18%.

The Latvian economy entered a phase of fiscal contraction during the second half of 2008 after an extended period of credit-based speculation and unrealistic inflation of real estate values. The national account deficit for 2007, for example, represented more than 22% of the GDP for the year while inflation was running at 10%.[27] By 2009 unemployment rose to 23% and was the highest in the EU.[28]

Paul Krugman, the Nobel Laureate in economics for 2008, wrote in his New York Times Op-Ed column for 15 December 2008:

"The acutest problems are on Europe's periphery, where many smaller economies are experiencing crises strongly reminiscent of past crises in Latin America and Asia: Latvia is the new Argentina " [29]

By August 2009, Latvia's GDP had fallen by 20% year on year, with Standard & Poor's predicting a further 16% contraction to come. The International Monetary Fund suggested a devaluation of Latvia's currency, but the European Union objected to this, on the grounds that the majority of Latvia's debt was denominated in foreign currencies.[30] Financial economist Michael Hudson has advocated for redenominating foreign currency liabilities in Latvian lats before devaluing.

However, by 2010 there were indications that Latvia's policy of internal devaluation was successful.[31]

Economic recovery 2010–2012

The economic situation has since 2010 improved,[32] and by 2012 Latvia was described as a success by IMF managing director Christine Lagarde[33] showing strong growth forecasts. The Latvian economy grew by 5.5% in 2011[34] and by 5.6% in 2012 reaching the highest rate of growth in Europe.[35] Unemployment, however, remains high, and GDP remains below the pre-crisis level.[36]

Privatisation

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.

Employment

Employed-unemployed in Latvia 1996-2017
Employed-unemployed in Latvia in workforce 15–74 years old (thousand people) 1996-2017 and chain-linked GDP reference year 2010 (bln EUR) Data: Statistics Latvia
Latvia average wage, 2017
  0510-0593
  0594-0676
  0677-0759
  0760-0842
  0843-0925
  0926-1008
  1009-1091
  1092-1170
Average monthly gross wages in cities under state jurisdiction and counties (in euro) 2017. Excluding private sector enterprises with number of employees < 50. Data: Central Statistical Bureau of Latvia

Average wages are higher in Riga and its surroundings and in Ventspils and its surroundings, with inland border regions lagging behind,

Energy

Almost all of Latvian electricity is produced with Hydroelectricity. Biggest hydroelectric power stations are Pļaviņas Hydroelectric Power Station, Riga Hydroelectric Power Plant, Ķegums Hydroelectric Power Station.

In 2017 about 4381 GWh were produced in hydro power and 150 GWh in wind power. There is a steady increase in Wind electricity production, and by 2022 the biggest wind farm is supposed to open which would produce 0.7 terawatt hours of energy (10% of country total)[37]

Latvia imports 100% of its natural gas from Russia.[38]

Statistics

Household income or consumption by percentage share:
lowest 10%: 2.9%
highest 10%: 25.9% (1998)

Industries: synthetic fibres, agricultural machinery, fertilizers, radios, electronics, pharmaceuticals, processed foods, textiles, timber; note – dependent on imports for energy and raw materials

Industrial production growth rate: 8.5% (2004 est.)

Electricity – production: 4,547 GWh (2002)

Electricity – production by source:
fossil fuel: 29.1%
hydro: 70.9%
nuclear: 0%
other: 0% (2001)

Electricity – consumption: 5,829 GWh (2002)

Electricity – exports: 1,100 GWh (2002)

Electricity – imports: 2,700 GWh (2002)

Agriculture – products: grain, potatoes, vegetables; beef, milk, eggs; fish

Foreign direct investments in Latvia: Lursoft statistics on the remaining amount of investments at the end of each year. [1]

Packet of 20 cigarettes: On Average 3.30 – 4.50 EUR.

See also

Notes

  1. ^ data cover general government debt, and includes debt instruments issued (or owned) by government entities, including sub-sectors of central government, state government, local government, and social security funds

References

  1. ^ Before 2014: Latvian Lats.
  2. ^ a b c d e "Report for Selected Countries and Subjects". IMF.org. International Monetary Fund. Retrieved 19 January 2019.
  3. ^ a b c d e f g h i j k l m n o p "CIA World Factbook". CIA.gov. Central Intelligence Agency. Retrieved 19 January 2019.
  4. ^ "Gini coefficient of equivalised disposable income - EU-SILC survey". ec.europa.eu. Eurostat. Retrieved 25 March 2019.
  5. ^ "Total unemployment rate". ec.europa.eu. Eurostat. Retrieved 25 March 2019.
  6. ^ a b http://data.csb.gov.lv/pxweb/lv/Sociala/Sociala__isterm__dsamaksa/?tablelist=true
  7. ^ "Ease of Doing Business in Latvia". Doingbusiness.org. Retrieved 21 November 2017.
  8. ^ "Exports of Latvia". facts are taken from Latvian CSB. 2017. Retrieved 17 2017. Check date values in: |accessdate= (help)
  9. ^ "Export Partners of Latvia" (PDF).
  10. ^ "Imports of Latvia". Facts are taken from Latvian CSB. 2017. Retrieved 17. Check date values in: |accessdate= (help)
  11. ^ "Import Partners of Latvia". CIA World Factbook. 2014. Retrieved 14 January 2015.
  12. ^ "Sovereigns rating list". Standard & Poor's. Retrieved 4 June 2014.
  13. ^ Rogers, Simon; Sedghi, Ami (15 April 2011). "How Fitch, Moody's and S&P rate each country's credit rating". The Guardian. London. Retrieved 31 May 2011.
  14. ^ "Rating Action: Moody's upgrades Latvia's government bond ratings to A3; stable outlook". Moody's. 2015. Retrieved 27 February 2017.
  15. ^ "Fitch Affirms Latvia at 'A-'; Outlook Stable". Fitch. 2016. Retrieved 27 February 2017.
  16. ^ "Scope affirms Latvia's credit rating of A-, Outlook remains Stable". Scope Ratings. 2018. Retrieved 27 April 2018.
  17. ^ https://data.oecd.org/lprdty/gdp-per-hour-worked.htm#indicator-chart
  18. ^ "Members and Observers".
  19. ^ "Latvia becomes full-fledged OECD member". LETA. 1 July 2016. Retrieved 4 July 2016.
  20. ^ "Rankings – Doing Business – The World Bank Group". Doing Business. Retrieved 6 September 2012.
  21. ^ Human Development Index and its components Retrieved 2012-09-06
  22. ^ The CIA World Factbook Latvia – CIA – The World Factbook Retrieved 2012-09-06
  23. ^ "GDP of Latvia increased by 5.5% in 2011". The Baltic Course. 9 March 2012. Retrieved 24 March 2012.
  24. ^ Latvia and the Baltics—a Story of Recovery by Christine Lagarde managing director, International Monetary Fund Riga, 5 June 2012
  25. ^ Ruta Aidis, Friederike Welter: The Cutting Edge: Innovation and Entrepreneurship in New Europe, Edward Elgar Publishing, 2008, p. 32
  26. ^ Damien, McGuinness (4 February 2010). "In Pictures: Latvia economy reels in recession". BBC.
  27. ^ "Latvia". CIA. Retrieved 15 December 2008.
  28. ^ "Robin Hood hacker exposes bankers". BBC News. 24 February 2010. Retrieved 1 May 2010.
  29. ^ Krugman, Paul (15 December 2008). "European Crass Warfare". The New York Times. Retrieved 15 December 2008.
  30. ^ Evans-Pritchard, Ambrose (10 August 2009). "S&P downgrades Baltic states' debt ratings". The Daily Telegraph. London. Retrieved 1 May 2010.
  31. ^ Baltic Business News, 8 February 2010
  32. ^ Moody's: Latvian economy is stabilizing Baltic Business News, Retrieved on 3 September 2012
  33. ^ Those who change will endure – IMF managing director LETA Retrieved on 5 June 2012
  34. ^ Danske Bank: we expect Latvian GDP to grow by 2.0% y/y in 2012 Retrieved on 3 September 2012
  35. ^ GDP growth in Latvia, at 5.6%, the fastest in Europe; growth to moderate this year Archived 22 October 2013 at the Wayback Machine
  36. ^ http://www.multpl.com/latvia-real-gdp
  37. ^ "Par aptuveni 250 miljoniem eiro būvēs Latvijā lielāko vēja parku". www.lsm.lv (in Latvian). Retrieved 22 December 2018.
  38. ^ "Europe's Declining Gas Demand: Trends and Facts about European Gas Consumption - June 2015". (PDF). p.9. E3G. Source: Eurostat, Eurogas, E3G.

External links

2008 Latvian financial crisis

The 2008 Latvian financial crisis, which stemmed from the global financial crisis of 2008–2009, was a major economic and political crisis in Latvia. The crisis was generated when an easy credit market burst, resulting in an unemployment crisis, along with the bankruptcy of many companies. Since 2010, economic activity has recovered and Latvia's economic growth rate was the fastest among the EU member states in the first three quarters of 2012.

Baltic Tiger

Baltic Tiger is a term used to refer to any of the three Baltic states of Estonia, Latvia, and Lithuania during their periods of economic boom, which started after the year 2000 and continued until 2006–2007. The term is modeled on Four Asian Tigers, Tatra Tiger and Celtic Tiger, which were used to describe the economic boom periods in parts of Asia, Slovakia and Ireland, respectively.

Bank of Latvia

The Bank of Latvia (Latvian: Latvijas Banka) is the central bank of Latvia. It is one of the key public institutions and carries out economic functions as prescribed by law. It was established in 1922.The principal objective of the Bank of Latvia is to regulate currency in circulation by implementing monetary policy to maintain price stability in Latvia. Until 31 December 2013, the bank was responsible for issuing the former Latvian currency, the Lats. The Bank of Latvia administration is located in Riga. The fiscal year for the bank begins on 1 January and ends on 31 December.

Dartz

Dartz Motorz Company (Latvian: Dartz Motorz Uzņēmums; Russian: Dartz Моторз Kомпании) is a privately held Latvian-based company, subsidiary of Estonian corporation Dartz Grupa OÜ, that designs, manufactures, and sells high performance armored vehicles. The company constituted itself from a renovated former Russo-Balt factory in Riga, Latvia.

GUAM Organization for Democracy and Economic Development

The GUAM Organization for Democracy and Economic Development is a regional organization of four post-Soviet states: Georgia, Ukraine, Azerbaijan, and Moldova.

Guntars Krasts

Guntars Krasts (born 16 October 1957 in Riga) is a Latvian politician, former Prime Minister, and former Member of the European Parliament for the single Latvia constituency. Born in Riga, he was the Minister of Economy of Latvia from December 1995 to August 1997, Prime Minister of Latvia from August 1997 to November 1998, and the Deputy Prime Minister from November 1998 to June 1999. Krasts was a member of Saeima, the Latvian parliament, from June 1999 until being elected to the European Parliament in 2004.

Investment and Development Agency of Latvia

Established in 1993, the Investment and Development Agency of Latvia, or LIAA for short, acts under the Ministry of Ministry of Economics of the Republic of Latvia. Since 2004, the Director of LIAA is Andris Ozols.

Latvian lats

The lats (plural: lati (2–9) latu (10 and more)), ISO 4217 currency code: LVL or 428) was the currency of Latvia from 1922 until it was replaced by the euro on 1 January 2014. A two-week transition period during which the lats was in circulation alongside the euro ended on 14 January 2014. It is abbreviated as Ls and was subdivided into 100 santīmi (singular: santīms; from French centime).

Latvian rublis

The Latvian rublis (Latvian: Latvijas rublis) was the currency of Latvia from 1919 to 1922 and again from 1992 to 1993.

Liepāja Special Economic Zone

Liepāja Special Economic Zone (Latvian: Liepājas SEZ) - is a zone in Liepāja, Latvia with a lowered tax rates, compared to the rest of the territory of Latvia. Liepāja Special Economic zone was established in 1997 for a 20-year period with the aim of developing trade, industry, shipping and air traffic, as well as international freight flow via Latvia. The goal of the Liepāja SEZ is to attract investments for the development of manufacturing and infrastructure, and creation of new jobs.

Companies with SEZ status operating in the free zone have the right to the following direct tax exemptions:

80% allowance on corporate income tax;

80% - 100% allowance on real estate tax.The Liepāja SEZ covers approximately 30 km² which is almost 65% of the city territory. The SEZ territory consists of:

Port (3.7 km² land territory, 8.1 km² - aquatorium).

Industrial area of the town with total area - 5.427 km²

Liepāja International Airport with total area - 2.511 km², it being the second largest airport in Latvia

Former military base Karosta with total area approximately 20 km².More than 20 km² of Liepāja SEZ territory are classified as "free territories", which are available for potential investors for development of business.

List of banks in Latvia

This list is based on information from Financial and Capital Market commission.

List of companies of Latvia

Latvia is a country in the Baltic region of Northern Europe, one of the three Baltic states. Latvia is a democratic and developed country and member of the European Union, NATO, the Council of Europe, the United Nations, CBSS, the IMF, NB8, NIB, OECD, OSCE, and WTO. For 2014, Latvia was listed 46th on the Human Development Index and as a high income country on 1 July 2014. It used the Latvian lats as its currency until it was replaced by the euro on 1 January 2014.For further information on the types of business entities in this country and their abbreviations, see "Business entities in Latvia".

Micro enterprise tax in Latvia

Micro enterprise tax in Latvia — it is special tax regime. The law, regulating the tax, entered into force on 1-st, September, 2010 and name of the law is The law on micro enterprises tax.

Ministry of Economics (Latvia)

The Ministry of Economics of the Republic of Latvia (Latvian: Latvijas Republikas Ekonomikas ministrija) is the leading state administrative institution responsible for economic policy in Latvia. The ministry also represents the economic interests of Latvia in the European Union.

Popular Front of Latvia

The Popular Front of Latvia (Latvian: Latvijas Tautas fronte) was a political organisation in Latvia in the late 1980s and early 1990s which led Latvia to its independence from the Soviet Union. It was similar to the Popular Front of Estonia and the Sąjūdis movement in Lithuania.

Its newspaper was Atmoda ("Awakening", cf. Latvian National Awakening), printed in the Latvian and Russian languages during 1989-1992.

Riga Autobus Factory

The Riga Autobus Factory (Latvian: Rīgas Autobusu Fabrika) (abbreviated RAF) was a factory in Jelgava, Latvia, making vans and minibuses under the brand name Latvija.

Riga Stock Exchange

The Riga Stock Exchange, now Nasdaq Riga, is the sole stock exchange operating in Riga, Latvia. It is owned by Nasdaq, which also operates exchanges in the USA, Denmark, Sweden, Finland, Iceland, Armenia, Lithuania, and Estonia. Established in 1993.

Riga Stock Exchange, together with Vilnius Stock Exchange and Tallinn Stock Exchange is part of the joint Baltic market that was established to minimize investing barriers between Latvian, Lithuanian and Estonian markets.

OMX Riga (OMXRGI) is an all-share index consisting of all the shares listed on the Riga Stock Exchange.The exchange has a pre-market session from 08:30am to 10:00am, a normal trading session from 10:00am to 04:00pm, and a post-market session from 04:00pm to 04:30pm.

Taxation in Latvia

In Latvia, taxes are levied by both national and local governments. Tax revenue stood at 28.1% of the GDP in 2013. The most important revenue sources include income tax, social security, corporate tax and value added tax, which are all applied on the national level. Income taxes are levied at a flat rate of 23% on all income. A long range of tax allowances is given including a standard allowance of €900 per year and €1980 per year for every dependent.Social security contributions are levied on all employment income and are mandatory for most workers. The employee pays 11% of the wage, while the employer contributes 24.09%. There was no maximum ceiling for social security in year 2013 because of the economic crisis, but the ceiling was reinstated in 2014 at €46,600 of yearly income. The standard rate for VAT is 21%; for medications and heating expenses, a reduced rate of 12% applies. Some goods and services are also exempt from VAT, this include education, medical care, financial transactions and rent.

Excise taxes apply on different luxury goods and things harmful to the environment. Wine is subject to excise duty of €64.03 per 100 litres. Coffee is subject to excise at €142.29 per 100 kg.Taxation in Latvia have gone through major reforms since leaving the soviet union in 1991 and making a transition from a central run economy to a market economy. The fiscal system in Latvia after leaving soviet in Latvia was similar other former communist states with high public spending (45-50% GDP) and a tax system that relied in tax base definitions characteristic of central planning. Since then a long range of reforms have been made, including introducing a VAT in 1992 and Social Security Contributions.

VEF Spidola

VEF Spidola (Latvian: VEF Spīdola, Russian: ВЭФ Спидола) was the first mass-produced transistor radio with short wave band in the Soviet Union. It was manufactured by the VEF factory in Riga, Latvia, since 1962. A small series under the name "Spidola" (Спидола ПМП-60) was manufactured since 1960. It was named after the fictional witch Spīdola from the Latvian epic poem.

The word "spidola" was a genericised trademark for "transistor radio" for long time in Russian (other synonyms included "transistor").

In many cases, the Spidola was used to listen to Western stations (such as the Voice of America ).. The criminal prosecution of at least one Soviet dissident involved confiscation of the Spidola as an "instrument of crime," but without specifying the "crime" committed with the confiscated Spidola.

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