Latvia’s economy has weathered the Covid-19 crisis well, but Russia’s war on Ukraine has worsened its prospects for recovery, according to the European Commission’s Latvia 2022 report.
Although the impact of the Covid-19 crisis on the Latvian economy has been more moderate than the average for EU countries, the European Commission stresses that its recovery has been hampered by low vaccination rates and the need maintain restrictions on business activities. However, vaccination rates improved significantly in early 2022, and more encouraging epidemiological forecasts for 2022 are expected to significantly increase household consumption and service exports.
Thus, Latvia showed a stable growth rate at the beginning of 2022, and consumption, investment and exports could be expected to be good, but the Russian invasion of Ukraine and the subsequent rise Raw material prices, especially energy resources, have worsened the prospects for recovery. of the pandemic.
According to European Commission forecasts, the loss of export earnings and rapidly rising prices in 2022 will slow real economic growth to 2%, and in 2023 growth is expected to reach 2.9%.
The report notes that Latvia has close trade ties with Russia and depends on its energy resources. The suspension of trade with Russia is expected to lead to a loss of export earnings and a significant increase in the price of wood and metals, which were mainly supplied by Russia.
According to the forecasts of the European Commission, the economic and financial sanctions applied to Russia and Belarus, as well as the intention of Latvia to completely abandon Russian gas, will stop trade with the two countries in all groups of goods. Latvia’s total exports to Russia and Belarus in 2021 accounted for more than 4% of gross domestic product (GDP), while imports, including energy resources, exceeded 6% of GDP.
Soaring energy prices and supply disruptions are also expected to lead to high inflation. According to the forecasts of the European Commission, due to the rapid rise in the prices of energy and food resources, inflation in 2022 will be 9.4%.
While global energy price growth is expected to slow in the spring of 2023, a “domino effect” is expected in industry and construction, which will contribute to inflation.
According to the EC report, among Latvia’s main tasks in the field of environment and climate is the need to reduce energy consumption and increase the use of renewable energy resources. Among the problems in this area are also the introduction of a circular economy and the improvement of the protection of biodiversity.
Although the share of renewable energy sources in Latvia is one of the highest in the EU, the country faces serious problems related to emissions that are not included in the emissions trading system. broadcast, notes the report.
The most likely long-term solution to increase the share of renewable energy resources in Latvia is to use the potential of wind and solar energy, which will also help reduce the country’s energy dependence.
As the European Commission points out, significant problems also exist in the protection of biodiversity in Latvia, and forestry is still underdeveloped – the condition of 90% of protected forests and grasslands is assessed as weak or bad, and absorption of emissions by forests is reduced .
The report notes that Latvia is making good progress towards sustainable development and has performed well in a number of indicators, but circular economy indicators still need to be improved.