Output in the Latvian economy is projected to increase by 3.2% in 2021 and 5.6% in 2022. Private consumption will rebound starting from the second half of 2021, fuelled by pent-up demand and by rising consumer confidence. Exports have been resilient and will remain strong. Investment will rise due to improving economic sentiment and sizeable EU funds. Inflation may increase temporarily as a result of higher food and energy prices and the increase in minimum wages. Still, core inflation should remain subdued, gradually increasing towards 2%. The lagging vaccine rollout risks delaying the recovery.
Fiscal support has helped to avoid a more severe downturn and should remain in place, although with more targeting towards the most vulnerable and affected households and firms, until the recovery is well underway. More spending on adult training, particularly in terms of digital skills, could help to lower joblessness faster by reducing skills mismatches and boost potential growth.