Earlier in September, the bank predicted inflation could reach 2.3% next year, while GDP growth was 3%.
Inflation in Latvia has returned to a low level and is lower than the euro area average.
Prices have shrunk in recent months of this year, mainly due to a sharp drop in global energy prices. This is reflected in lower prices of thermal energy and fuel in Latvia, which reduces pressure on prices of other goods and services, said the Bank of Latvia.
The inflation estimate for 2023 is 9%, which is in line with the Bank of Latvia's September forecasts. Inflation is projected to be around 2% over the next three years (2%, 2.3% and 1.8%, respectively, for 2024-2026).
Core inflation will remain consistently higher (3-5%) throughout the forecast period than overall inflation due to strong wage growth.
The Bank of Latvia reduced GDP forecasts, anticipating a 0.4% GDP decline for this year and 2% growth for 2024. This is mainly due to the audit of data from previous periods of the Central Statistical Bureau at the end of September, shortly after the publication of the Bank of Latvia's September forecast.
However, the global geopolitical situation, the deteriorating consumer sentiment, and the weak growth of other Baltic States also do not contribute to optimtic forecasts, the Bank of Latvia said.
External demand, especially in Estonia and Lithuania, has weakened. The restrictive monetary policy slows growth in trading partner countries.
In Latvia, the largest manufacturing sector, the wood industry, continues to weaken, whose price competitiveness in export markets has also deteriorated in addition to decreasing demand and prices.
GDP growth of 3.6% is expected in 2025 and 3.8% in 2026.
