Detailed Review of Latvia’s Economy
Latvia has orientated itself towards a market economy since its independence and has managed to grow thanks to good domestic demand and European Union aid. Nevertheless, the financial crisis of 2008 strongly shook its economy to the point that the IMF intervened with EUR 7 billion in aid. Its growth is estimated at 2.1% for 2014.
Latvian agriculture accounts for 4% of GDP and its most influential sectors are livestock rearing, the production of grains, beet, potatoes and plants. The country’s natural resources are also limited to wood, making it dependent largely on Russia for its energy. Industry still has a major influence, accounting for more than 20% of GDP, particularly in the sectors of construction, metallurgy, food and mechanical engineering. Finally, the tertiary sector dominates the Latvian economy, employing more than 60% of the workforce.
Latvia is a very open market place with a significant portion of national GDP accounted for by foreign trade. Its main trading partners are Russia and the European Union, and the country exports mainly wood and coal.
Latvia’s Economic Strengths
- European legislation.
- Cheap and skilled workforce.
- High productivity.
- Favourable tax system.
- Proximity to Russia.
Latvia’s Economic Weaknesses
- Significant competition from the Scandinavian countries.
- Not many foreign companies.
- Major market fluctuations.
The Latvian Government has put in place grants for foreign investment, particularly in the industrial sector, where it wants to develop high tech industry.