Finnish economist: the impact of USA tariffs on Latvia’s exports will be limited, uncertainty will be bigger challenge

“Latvia's economic growth is accelerating after a prolonged period of stagnation. However, risks to growth remain, particularly in trade policy. While direct impacts from U.S. tariffs on Latvian exports remain limited – affecting only a small portion of GDP – the broader uncertainty in global trade could have more profound effects. Increased trade barriers and disruptions in supply chains may dampen investment and export activity, particularly as Latvia’s economy heavily relies on exports. While global trade uncertainty poses risks, Latvia's businesses have a strong track record of adapting to challenges, ensuring long-term stability in the economy,” predicts J. Widgrén.

Latvia’s economy is showing resilience

Despite the challenges, Latvia’s economy continues to demonstrate stability and adaptability. Rising wages and lower inflation will support household consumption, while investments and exports are expected to gain momentum. As global trade continues to evolve, Latvia remains well-positioned to navigate these shifts and sustain long-term economic stability.

According to the latest data, inflation, which spiked across all Baltic states, has now cooled and is near the 2% target in Latvia, boosting household purchasing power. Investments are expected to strengthen, further supporting economic activity. The labor market has remained relatively strong across the Baltic region, supporting economic resilience. Compared to Estonia, where consumer confidence is weaker, Latvia shows stronger private consumption growth.

“In the face of ongoing uncertainties, we are seeing moderate economic activity. However, we maintain a positive outlook for the future and anticipate gradual growth. Last year, we observed a notable increase in the number of investment projects initiated, which will likely strengthen GDP growth this year," says Elmārs Prikšāns, General Manager at OP Corporate Bank plc Latvia branch.

Differences between Baltic states remain

OP Financial group predicts GDP growth this year to be the highest in Lithuania (3%) followed by Latvia with 2.5% and Estonia with 1.7%.

While Latvia’s inflation is under control, providing a more stable environment for businesses and households, Estonia continues to face inflationary pressures, with tax hikes expected to push inflation higher next year.

Across the Baltics, Lithuania’s export markets have shown the most strength, while Latvia and Estonia are seeing early signs of recovery in manufacturing. However, private consumption remains weak in Estonia and Latvia, though Latvia is showing improvement. Housing markets in all three countries have remained stable compared to the rest of Europe, particularly the Nordics, where price volatility has been more pronounced.

Global economic outlook: growth continues amid tariff uncertainties

"The global economy continues to grow steadily, with key indicators pointing to sustained expansion. Trade has rebounded, reaching record levels, signaling a strong global outlook. Despite a generally positive global trade environment, the risk of additional tariffs remains a key concern. Uncertainty in international markets could weigh more heavily on economic performance than the tariffs themselves,” says the economist.

He adds that under President Trump’s administration, the USA is likely to impose tariffs, although the scale of these measures remains uncertain. But the higher the tariffs, the larger the impact on world economy - Trump has threatened Europe with a general 25% tariff, if implemented, it would have significant economic impacts on both Europe and the United States. According to the Kiel Institute's estimate, a 25% tariff on Europe would reduce GDP by 0.4% compared to the baseline. If EU retaliates with its own 25 percent tariff, the impact would increase to over 0.5%. For the Baltic countries, the impact on GDP would likely be similar to that of Europe as a whole.

This uncertainty casts a shadow over an otherwise optimistic global economic outlook. In these circumstances, economies must adapt to an increasingly unpredictable environment, but despite these challenges, the broader global outlook remains optimistic, with resilient growth trends supporting continued economic expansion.