"Latvia remains among the countries whose economy is catching up fastest with the EU average, but addressing population decline and ensuring that economic growth benefits all of society continue to be important challenges. Latvia’s economic and labor market performance has been solid in recent years and government borrowing has remained broadly sound. However, growth has not been fully inclusive, as inequality has remained high and growth in peripheral regions has lagged behind the Riga region," the Commission's 2019 European Semester review says.
"Due to the increasing shortage of workers, real wage growth (i.e. taking inflation into account) has exceeded productivity growth for a number of years already. This has not had a significant impact on Latvia’s export performance so far, but if the current wage and productivity trend continues, the competitiveness of Latvia’s exports could suffer in the longer term," the Commission warned.
"On the other hand, inflation remains broadly in check, the economy’s current account is in surplus and credit growth is low, thus significantly reducing the likelihood of the economy overheating," it added.
However, "great disparities" continue to exist between rich and poor, and also been wealthy Rīga and the more deprived regions.
"Not everyone is benefiting from the improved economic situation, and high income inequality remains a challenge. The proportion of people at risk of poverty is decreasing but remains high, especially among vulnerable groups. Moreover, the impact of social benefits on reducing poverty is relatively limited. Access to healthcare remains a significant concern, given the high number of cases where people, especially in the lowest income group, are unable to receive necessary health services," the Commission said.
The full 77-page report can be downloaded from the European Commission.