Finnish Economist Forecasts 2.5% GDP Growth for Latvia in 2026
By the end of this year, signs of recovery in the Latvian economy are becoming increasingly clear, emphasizes Joona Widgren, Senior Economist at Finland’s leading financial group OP Pohjola. Forecasts indicate that next year GDP will grow by 2.5%, and in 2027 – by 3%. Inflation in Latvia could decrease to 2% in 2026, while in 2027 it is expected to stabilize at 2.5%.
Signs of recovery in the Latvian economy are becoming more pronounced
The economist points out that the foundations for growth are gradually becoming more stable – in 2025, GDP will increase by 1%, and in 2026, growth will accelerate to 2.5%. Next year, recovery will be driven mainly by domestic demand, while exports will continue to grow despite international trade tensions.
The manufacturing sector in Latvia is showing gradual improvement, supported by rising external demand and the stabilization of the euro area economy. Consumer confidence has improved in recent months, although private consumption is still behind its long-term potential, leaving room for further growth. Inflation remained high in 2025 – at 3.5% – but will decrease to 2% in 2026 and stabilize at 2.5% in 2027. The labour market in Latvia remains stable, and the unemployment rate is still the lowest in the Baltics.
“The latest economic forecasts show that Latvia’s growth outlook is becoming more stable. Household activity and the gradual recovery of exports will be the main factors driving the economy forward next year. These forecasts confirm that companies have a more favourable environment for investment decisions, and the banking sector is ready to support this development with sustainable financing,” emphasizes Elmārs Prikšāns, General Manager of OP Corporate Bank plc’s Latvian branch.
Baltic economies are recovering, inflation is stabilizing
Compared to the beginning of the year, the situation in the Baltic states has improved – although the pace of recovery is uneven, economic recovery has begun. Lithuania continues to maintain the fastest growth – although industrial growth has slowed and exports are hampered by US tariffs, GDP growth of 2.5–3% is expected next year, driven by stable domestic demand. In Estonia, recovery is much slower – this year GDP grew by only 0.5%, while inflation reached 5.3%. Overall, inflation in the Baltics is stabilizing, but its level will remain high and above the ECB target, influenced by the rapid rise in service and food prices. Meanwhile, the negative impact of energy prices is no longer observed, indicating that future inflation dynamics will be determined by local factors.
“At the end of the year, we see increasingly clear signs that the Baltic economies are gradually recovering from the shocks of previous years. The pace of growth is still uneven – Lithuania is showing faster progress, while Estonia’s recovery is slower, but the overall dynamic in the region is positive. In Latvia, the main driver of growth next year
will be domestic demand, and the export outlook currently appears more stable than a few months ago,” explains J. Widgren.
The global economy is strengthening
Compared to this spring, the outlook for the global economy has improved significantly – concerns about a large-scale global trade war have diminished, the US has reached agreements with some of its trading partners, and the set tariff level has stabilized at around 15–20%. This has improved market sentiment and contributed to a moderate recovery in global growth, especially in the services sector, while industry is still recovering gradually. The latest forecasts indicate that global economic growth will remain around 3% in the coming years.
No significant shocks are expected regarding base interest rates. In the summer, the European Central Bank reduced its base interest rate to 2%, and currently it does not see a reason to change the current monetary policy stance.
“The situation in the global economy has become somewhat more favourable – market expectations have stabilized, tariff risks have decreased, and the services sector continues to drive growth. Growth in global trade is very important for small and open economies like the Baltic states. If this growth trend continues, the Baltic states will have good opportunities to strengthen their recovery in the coming years,” emphasizes J. Widgren.
About OP Corporate Bank plc Latvian branch
OP Corporate Bank plc is the central bank of OP Pohjola, Finland’s largest financial services provider. It began operations in Latvia in 2012 and is now one of the leading banks in Latvia in terms of loan volume issued to medium and large enterprises. OP Corporate Bank plc Latvian branch provides financial services to leading companies in Latvia and plays a significant role in the long-term development of the country and the entire region.