Latvia’s economy has grown robustly in recent years on the back of a strong track record in implementing structural reforms, despite a challenging international environment. Rising wages have supported household consumption. After a severe setback in 2008-09, catch-up with higher income OECD countries may have resumed. Government finances are solid and financial market confidence in Latvia is strong. Private sector indebtedness is now lower than in many OECD economies. Export performance, including diversification of products and destinations, is improving, but Latvia’s participation in global value chains is modest. Latvia’s exports still rely heavily on low value-added, natural resource intensive products, reflecting in part skills shortages and weak innovation. Unemployment remains high, although it has fallen. Many young Latvians emigrate. Informal economic activity is still widespread.
High long-term unemployment, weak social safety nets and high labour taxes for workers on low pay contribute to widespread poverty. Many low-income households are inadequately housed. High out-of-pocket payments limit access of low-income households to health services. Improving access to housing, health care, education and training would improve economic opportunities for low-income households and requires additional government spending.