The Ministry has developed macroeconomic indicator forecasts for the period up to 2024. According to the updated forecasts, Latvia's gross domestic product (GDP) growth will reach 3.0% in 2021, accelerating to 4.5% growth in 2022.
Compared to the previous forecasts made in June 2020, the GDP growth forecast for 2021 has been reduced by 2.1 percentage points, but for 2022 the GDP growth forecast is 1.4 percentage points higher than in June last year.
"Although the economic downturn of 3.5% was lower than projected in 2020, GDP growth in 2021 will be lower than projected in June last year due to restrictions on the re-emergence of Covid-19 and the spread of the disease. The updated projections assume that economic developments will continue to be adversely affected by the spread of Covid-19 until mid-2021, after which growth will begin to recover rapidly after the removal of most restrictions," the Ministry said.
The forecast is based on the Covid-19 vaccination plan, which envisages that 70% of the Latvian population will have been vaccinated by the end of this summer, therefore a recurrence of the disease in autumn 2021 is not expected.
Therefore if vaccination targets fail to be met, there would be an obvious downside risk to forecasts.
"Economic growth in 2021 will be ensured by a recovery of private consumption growth of 4%, investment growth and export growth of 4.1% and 4.3%, respectively, while public consumption growth will remain at last year's level and amount to 2.4%. Further acceleration of economic growth in 2022 will be ensured by both a full recovery of private consumption and a rapid increase in investment, including a significant increase in investment by European Union (EU) funds," the Ministry predicted.
The forecasts are generally in line with the forecasts published by the European Commission (EC) on 11 February, which forecast that Latvia's GDP will increase by 3.5% in 2021 and by 3.1% in 2022.
The Ministry of Finance forecasts the average annual inflation for 2021 at the level of 1.4%, increasing from 0.2% last year. In 2022, inflation will continue to rise, reaching 2.0% and stabilizing at this level throughout the period until 2024, it thinks.
The growth of the average monthly wage in 2021 is projected at 4.0%, accelerating to 5.0% in 2022 and stabilizing until 2024. The unemployment rate will rise to 8.3% this year, with the economic crisis in the labor market reflected with a slight lag. In 2022 unemployment is expected to decrease again to 7.1% of the economically active population.
The full macroeconomic forecasts are available on the Ministry's website.