Latvian Banks.
Latvian Financial System & Banking Indices.
News, Trends, Analysis, Reports.

»
»

Main Economic Trends in 1990's-2000's

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 center. Industry served local markets, while timber, paper, and agricultural products supplied Latvia’s main exports. Conversely, the years of Russian and Soviet occupation tended to integrate Latvia’s economy to serve those empires’ large internal industrial needs. Since reestablishing its independence, Latvia has proceeded with market-oriented reforms. Its freely traded currency, the Lat, was introduced in 1993 and has held steady, or appreciated, against major world currencies. The International Monetary Fund (IMF) has noted that Latvia’s economic performance the past several years had been among the best of the European Union (EU) accession countries. Real per capita GDP has grown by more than 50% compared to its 1995 level, while inflation has remained close to or below 3% since 1998. The government expects annual growth rates of about 6% in medium term. At the same time, current account deficit (ranging from 7% to 10% in the past 3 years) remains one of the key vulnerabilities of the Latvian economy. In addition, Latvian fiscal discipline deteriorated considerably at the end of 2002, when budget deficit rose to 2.7% of GDP, well above the government’s target figure. However, the government’s effort to improve tax administration, to fight gray economy, and to reintroduce strict budget discipline led to an improvement in the fiscal situation in the first 9 months of 2003.

Privatization in Latvia is almost complete. Virtually all of the previously state-owned small and medium companies have been privatized, leaving in state hands the electric utility, the Latvian railway company, and the Latvian postal system, as well as state shares in several politically sensitive enterprises. Despite the lack of transparency of the early stages of the privatization process, and certain difficulties in privatization of some of the largest companies, Latvian privatization efforts have led to the development of a dynamic and prosperous private sector, which accounted for 70% of GDP in 2002.

Foreign investment in Latvia remains high, as both Western and Eastern investors are trying to establish a foothold in the new EU member state, as well as to take advantage of Latvia’s stable macroeconomic environment, central location in the region, and cheap labor. Representing 7.1% of Latvia’s total foreign direct investment, the U.S. FDI stock in Latvia stood at $184 million at the end of 2002. In the same year, U.S. goods and services accounted for 1.6% of Latvia’s total imports, while exports to the United States accounted for 4.2% of Latvia’s total exports. Latvia is a member of the World Trade Organization since 1999. Latvia and the United States have signed treaties on investment, trade, and intellectual property protection and avoidance of double taxation.

In the long term, continued high economic growth in Latvia will depend on further improvements of the business environment, particularly successful drive to reduce corruption and strengthen the rule of law, and on Latvia’s ability to use the opportunities presented by EU membership.

Basic socio-economic indicators

Gross domestic product at current prices

Million Lats

  1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
                     
I — XII 2580.0 3076.1 3562.8 3902.9 4224.2 4685.7 5168.3 5691.1 6322.5  
                     
I — III 590.6 675.4 745.3 903.8 974.1 1074.9 1187.8 1278.7 1412.7 1603.0
IV — VI 648.6 765.2 881.8 986.2 1045.1 1147.7 1284.5 1402.9 1545.8  
VII — IX 632.3 785.1 921.8 996.4 1058.2 1176.3 1290.8 1439.1 1605.2  
X — XII 708.5 850.4 1013.9 1016.5 1146.8 1286.8 1405.2 1570.4 1758.8  

Gross domestic product

Percent of corresponding period of previous year, at constant prices

  1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
                     
I — XII 99.1 103.8 108.3 104.7 103.3 106.9 108.0 106.4 107.5  
                     
I — III 103.5 103.1 105.9 108.5 102.5 106.1 108.5 104.1 108.8 108.8
IV — VI 99.5 102.0 108.4 106.3 102.4 105.7 109.4 105.3 106.2  
VII — IX 97.0 105.4 109.4 103.9 103.1 107.0 106.9 107.7 107.3  
X — XII 96.6 104.6 109.3 100.5 105.2 108.8 107.2 108.6 107.5  

Consumer price change by commodity groups

%

Comodity group April 2004 — May 2004 May 2003 — May 2004
Total 1.3 6.2
Food 0.7 5.9
Alcoholic beverages and tobacco 0.6 6.6
Clothing and footwear 0.4 2.7
Housing, water, electricity, gas and fuels 0.0 8.7
Fumishing, household equipment and operation 0.5 1.7
Health care 4.7 17.0
Transport 5.0 9.4
Communication -0.1 -0.8
Recreation and culture 0.6 2.7
Education 0.2 3.5
Hotels and public catering 1.6 6.7
Miscleanous    

GDP in the 1st quarter of 2004 increased by 8.8%

Compared with the first three months of 2003, gross domestic product (GDP) in the 1st quarter increased by 8.8%, according to the Central Statistical Bureau.

The increase in GDP was due to the rises in the following sectors: 11.3% in trade (share in GDP structure 18.7%), 8.3% in transport and communications (15.5%), 10.6% in manufacturing (14.4%) and 13.0% in construction (4.0%).

Public, social and individual services rose on average by 5.0%, mainly due to an increase in the cultural, recreational and sports services.

There was a rise of 9.7% at constant prices in the sector of business services. The most notable increases at current prices were in advertising services (2 times), legal, accounting and consulting services (by 51%) followed by leasing services (38%) and real estate services (20%). Computer services, in turn, have decreased by 13%.

There was a rise of 7.5% in the sector of financial intermediation.

Electricity, gas and water supply increased by 6.8%.

The forestry sector continued to develop successfully (an increase of 7.2%).

Fishing rose by 20.9% due to the rising fish catch in the Baltic Sea and the Gulf of Riga.

Production output in agriculture went up by 1.0%.

Gross Domestic Product by kind of activity

Thousands LVL

  Code At current prices At average prices
2003 2004 2003 2004
Q1 Year Q1 Q1 Year Q1
Gross Domestic Product GDP 1412635 6322483 1603040 1397294 5788915 1519614
of which:              
Total value added A..O 1242959 5639508 1420349 1275297 5160286 1386944
of which:              
agriculture, hunting and forestry A 43935 232982 47530 39758 199330 41513
of which:              
agriculture, hunting and related services activities A01 18904 133742 20143 17977 118425 18157
forestry, logging and related services activities A02 25031 99240 27387 21781 80905 23356
fishing B 2652 10873 2413 3171 12380 3833
mining and quarrying C 2645 13020 2696 2432 11326 2369
manufacturing D 176978 785858 204756 182462 734152 201811
electricity, gas and water supply E 55308 170977 65281 46277 167389 49430
construction F 48952 316767 56581 65496 345013 74009
services G..O 912489 4109031 1041092 935701 3690696 1013979
of which:              
wholesale and retail trade; repair of motor vehicles,
motorcycles and personal and household goods
G 227027 1018871 265898 247607 955015 275523
hotels and restaurants H 15596 72277 18071 14688 62216 16205
transport storage and communications I 202290 871995 220829 178789 728960 193550
financial intermediation J 67339 302801 77173 63551 256474 68293
real estate, renting and business activities K 161138 745961 188333 186132 725343 204175
public administration and defence; compulsory social
security
L 91206 439248 106110 88007 379371 93914
education M 60933 270022 66153 55669 238143 57232
health and social work N 32946 162549 36057 43271 149726 44197
other community, social and personal service activities O 54014 225307 62468 57987 195448 60890
taxes on products (less subsidies on products) D.21 — D.31 169676 682975 182691 121997 628629 132670

Gross Domestic Product by kind of activity

General indicators of Gross Domestic Product

Year GDP, total GDP per capita
thsd LVL as % of (at constant prices) corresponding period of previous year LVL USD, at current prices* Euro, at current prices*
at current prices at average prices of 2000 at current prices at average prices of 2000
2003 6322483 5788915 107.5 2719 2489 4762 4216
Q1 1412635 1397294 108.8 606 600 1037 967
Q2 1545839 1437348 106.2 665 618 1160 1024
Q3 1605226 1449479 107.3 690 624 1204 1069
Q4 1758783 1504794 107.5 758 648 1368 1152
2004              
Q1 1603040 1519614 108.8 691 655 1285 1207

* Due to fluctuations in the exchange rates the dynamics of socio-economic indicators is in some cases considerably distorted if these indicators are recalculated into one common currency (in Euro or US dollars). To eliminate the impact of currency rate fluctuations, the dynamics of indicators in the CSB bulletins should be analyzed on the basis of growth rates that are calculated from the values in the national currency.

  Code As % of previous period, average prices of
2000
Structure at current prices, %
2003 2004 2003 2004
Q1 Year Q1 Q1 Year Q1
Gross Domestic Product IK 108.8 107.5 108.8      
of which:              
Total value added A..O 108.6 107.2 108.8 100.0 100.0 100.0
of which:              
agriculture, hunting and forestry A 103.3 100.5 104.4 3.6 4.1 3.3
of which:              
agriculture, hunting and related services activities A01 97.9 97.7 101.0 1.5 2.4 1.4
forestry, logging and related services activities A02 108.2 104.9 107.2 2.1 1.7 1.9
fishing B 122.8 109.7 120.9 0.2 0.2 0.2
mining and quarrying C 165.7 107.2 97.4 0.2 0.2 0.2
manufacturing D 110.4 109.1 110.6 14.2 14.0 14.4
electricity, gas and water supply E 104.8 102.8 106.8 4.5 3.0 4.6
construction F 117.5 113.7 113.0 3.9 5.6 4.0
services G..O 107.9 106.8 108.4 73.4 72.9 73.3
of which:              
wholesale and retail trade; repair of motor vehicles,
motorcycles and personal and household goods
G 117.3 111.3 111.3 18.3 18.1 18.7
hotels and restaurants H 111.0 116.4 110.3 1.3 1.3 1.3
transport storage and communications I 107.8 108.9 108.3 16.3 15.4 15.5
financial intermediation J 108.5 110.4 107.5 5.4 5.4 5.4
real estate, renting and business activities K 103.7 102.3 109.7 13.0 13.2 13.3
public administration and defence; compulsory social
security
L 102.1 102.4 106.7 7.3 7.8 7.5
education M 103.8 103.3 102.8 4.9 4.8 4.7
health and social work N 101.9 103.4 102.1 2.6 2.9 2.5
other community, social and personal service activities O 102.8 104.9 105.0 4.3 4.0 4.4

Foreign Trade of Latvia in 2003

Compared with 2002, the value of Latvia’s foreign trade in 2003 has increased at current prices, according to the Central Statistical Bureau. Merchandise export was worth 1650.6 mln lats, an increase of 17.2% compared with 2002. Total imports rose at a slightly faster pace — by 19.7% reaching in the previous year 2989.2 mln lats. The export-import balance is still increasing. In 2002 imports exceeded exports by 77.3% but in 2003 this difference was 81.1%.

Compared with 2002, the value of exported goods in 2003 rose by 241.8 mln lats. As in previous years, wood and articles of wood constituted the most significant part in Latvia’s exports; its share in the total export value was 35.2% (33.6% in 2002) followed by textiles and textile articles with 12.6% (12.8%), base metals and articles of base metals with 12.6% (13.2%), machinery, mechanical appliances and electrical equipment with 7.1% (6.5%) and miscellaneous manufactured articles (mainly furniture) with 5.9% (5.9%).

Export growth could be observed in almost all significant commodity groups. The steepest increases were in the export of wood and articles of wood (by 109.0 mln lats or 23.0%) followed by textiles and textile articles (by 28.6 mln lats or 15.9%), machinery, mechanical appliances and electrical equipment (by 25.8 mln lats or 28.4%), base metals and articles of base metals (by 22.0 mln lats or 11.9%) and the products of the chemical and allied industries (by 15.2 mln lats or 18.7%).

In 2002 there were decreases of 9.9 mln lats or 25.8% in the exports of pulp of wood; paper and paperboard and 6.7 mln lats or 6.6 % in the exports of food products (including alcoholic and non-alcoholic beverages).

Compared with 2002, imports in 2003 rose by 491.8 mln lats. Machinery, mechanical appliances and electrical equipment constituted the largest part of all imported goods (21.1% of total imports compared to 21.3% in 2002) followed by transport vehicles with 10.5% (9.8%), the products of the chemical and allied industries with 10.1% (10.5%), mineral products with 9.9% (9.7%) and base metals and articles of base metals with 9.3% (8.4%).

Imports of machinery, mechanical appliances and electrical equipment showed the steepest rises (by 98.9 mln lats or 18.6%), followed by transport vehicles (69.2 mln lats or 28.3%), base metals and articles of base metals (66.5 mln lats or 31.5%), mineral products (53.7 mln lats or 22.1%) and the products of the chemical and allied industries (39.5 mln lats or 15.1%).

In 2002 the value of exports to the EU was 61.8% (60.4% in 2002) of the total Latvia’s export value while imports constituted 51.0% (53.0%). Compared with 2002, the value of exports to the EU rose by 170.0 mln lats or 20.0% (by 81.6 mln lats or 10.6% in 2002). In turn, the value of imports from the EU increased by 200.9 mln lats or 15.2% (165.1 mln lats or 14.3% in 2002). Imports from the EU in 2002 exceeded exports by 471.5 mln lats but in 2003 — by 502.4 mln lats.

The most important export commodities to the EU were wood and articles of wood (sawn wood, wood in the rough, articles of wood and plywood), furniture, iron and non-alloy steel (bars, profiles, wire), non-ferrous metals and articles of non-ferrous metals and men’s and women’s clothing.

Among the most important commodities Latvia imported from the EU were machinery, mechanical appliances and electrical equipment (various machine tools, computer hardware, office equipment, household appliances and electrical equipment), passenger cars, paper and cardboard, semi-manufactures and articles of plastic and pharmaceutical products.

In 2002 commodity exports to the CIS represented 9.8% of total exports (10.0% in 2002). By contrast, imports from the CIS in 2003 have increased to 14.5% of the total imports in comparison with 13.1% in 2002. The export-import balance with the CIS countries has increased: the negative balance was 194.9 mln lats in 2001 and 186.9 mln lats in 2002 but in 2003 it was as high as 271.3 mln lats.

In 2002 exports to Russia, the most important trade partner among the CIS countries, represented 5.4% (5.9% in 2002) while imports constituted 8.7% (8.8% in 2002). Compared with 2002, exports to Russia rose by 7.6% or 6.3 mln lats and imports increased by 19.2% or 42.0 mln lats.

In 2003 tinned fish exports to Russia constituted 20.8 mln lats, a decrease of 2.5 mln lats compared with 2002. Pharmaceutical products, machinery and equipment (various machine tools), electrical machinery and equipment (electrical instruments, electrical engines and generators, electrical transformers), machines and mechanical appliances (various machine tools for different industries of the national economy), as well as base metals and articles of base metals dominated exports to Russia.

Among the most important goods Latvia imported from Russia were energy resources (natural gas, electricity, oil products), iron and non-alloy steel, sawn wood and other goods.


Source: Central Statistical Bureau of Latvia.