WIIW The Vienna Institute for International Economic Studies - Wiener Institut für Internationale Wirtschaftsvergleiche

The Russian war in Ukraine will substantially drag down growth in the small, open economy of Latvia. Almost all sectors will be affected by a fall-off in demand and escalating prices. The influx of Ukrainian refugees (accounting for 0.5% of the Latvian population) may even induce additional consumption in the short run. In these uncertain times, enterprises will largely refrain from investment, preferring to deplete their stocks and wait for the price rises to stabilise. In 2022, we expect GDP growth to fall to 1.4%, but then to recover somewhat, to 2.2% in 2023. Our main scenario assumes no substantial intensification of economic sanctions. Later, we would expect a stabilisation of GDP growth in Latvia at 2.3% in 2024.