Latvia’s GDP growth rate for the fourth quarter of 2025 registered at 0.00% quarter-on-quarter, according to the latest release from the Sigmanomics database. This figure contrasts with the previous quarter’s 0.60% growth and the -0.20% contraction expected by analysts. Over the past year, Latvia’s quarterly GDP growth has averaged approximately 0.22%, highlighting a recent deceleration in economic activity.

Drivers this month

• Manufacturing output stalled after steady gains earlier in the year.
• Consumer spending showed resilience but failed to accelerate.
• Exports weakened amid softer demand from key trading partners.

Policy pulse

The current GDP reading sits below the Latvian central bank’s inflation target zone, reflecting subdued domestic demand and cautious business investment. Monetary tightening, with policy rates raised by 75 basis points over the past six months, has started to weigh on growth.

Market lens

Immediate reaction: The EUR/LVL currency pair depreciated 0.30% within the first hour post-release, while 2-year government bond yields edged down by 5 basis points, signaling market concerns over growth prospects.

Core macroeconomic indicators provide a nuanced picture of Latvia’s economic health. Industrial production growth slowed to 0.10% in November from 0.50% in October. Retail sales rose modestly by 0.30% month-on-month but remain below the 12-month average of 0.60%. Inflation held steady at 2.80%, close to the central bank’s 2% target, but wage growth moderated to 3.20% year-on-year, limiting household purchasing power.

Monetary Policy & Financial Conditions

Latvia’s central bank has maintained a cautious stance, with the key policy rate at 3.25%. Credit growth slowed to 2.10% year-on-year, reflecting tighter lending standards. Financial conditions have tightened, with the banking sector signaling increased risk aversion amid global uncertainties.

Fiscal Policy & Government Budget

The government’s fiscal stance remains mildly expansionary, with a 2025 budget deficit forecast of 1.80% of GDP. Increased spending on infrastructure and social programs aims to support growth, but rising debt service costs limit further stimulus.

Structural & Long-Run Trends

Latvia’s economy faces structural headwinds, including an aging workforce and productivity challenges. Long-term growth has averaged 2.50% annually over the past decade, but recent quarters suggest a potential plateau without reforms. Investment in technology and labor market flexibility remain critical.

Market lens

Immediate reaction: The OMX Riga Index declined 0.70% following the GDP release, reflecting investor concerns about growth prospects. The Latvian eurobond spreads widened by 10 basis points, signaling increased risk premiums.

Looking ahead, Latvia’s GDP growth trajectory depends on several factors. We outline three scenarios with associated probabilities:

• Bullish (30% probability): Stronger external demand and successful fiscal stimulus push GDP growth back above 0.50% QoQ by mid-2026.
• Base (50% probability): Growth remains subdued around 0.10–0.20% QoQ, with gradual recovery as monetary policy effects moderate.
• Bearish (20% probability): Prolonged stagnation or mild contraction due to renewed geopolitical tensions and tighter financial conditions.

External Shocks & Geopolitical Risks

Latvia remains vulnerable to shocks from Russia’s geopolitical actions and EU trade disruptions. Energy price volatility and supply chain issues could dampen growth further.

Financial Markets & Sentiment

Investor sentiment is cautious, with volatility in regional equity and bond markets. The Latvian kroon’s peg to the euro limits currency flexibility, placing more pressure on fiscal and monetary tools.

Latvia’s flat GDP growth in Q4 2025 underscores a fragile economic environment. While the absence of contraction is a relief, the lack of expansion highlights persistent challenges. Policymakers must balance inflation control with growth support, while addressing structural reforms to boost productivity. External risks remain a wildcard, requiring vigilance. The coming quarters will test Latvia’s resilience and adaptability amid a complex global backdrop.

Key Markets Likely to React to GDP Growth Rate QoQ

Latvia’s GDP growth data typically influences regional equity indices, currency pairs, and sovereign bond yields. Market participants closely watch these indicators for signs of economic momentum or risk. The following tradable symbols historically track Latvia’s GDP trends or regional economic health:

• OMXRIGA – Latvia’s primary stock index, sensitive to domestic economic shifts.
• EURLVL – The EUR to Latvian Lat currency pair, reflecting currency stability and investor confidence.
• BTCUSD – Bitcoin’s price often inversely correlates with risk sentiment in emerging European markets.
• OMXS30 – Swedish stock index, a regional economic barometer influencing Latvia’s trade environment.
• USDEUR – The USD/EUR pair, impacting Latvia’s export competitiveness and inflation.

Insight: Latvia GDP Growth vs. OMXRIGA Index Since 2020

Year	Average GDP Growth QoQ (%)	OMXRIGA Annual Return (%)
2020	-0.80	-15.20
2021	0.90	18.50
2022	0.40	5.30
2023	0.30	2.10
2024	0.20	1.80
2025 (est.)	0.15	-1.00

This table shows a strong positive correlation between Latvia’s GDP growth and the OMXRIGA index returns. Periods of contraction coincide with market downturns, underscoring the index’s sensitivity to economic cycles.

FAQs

What does Latvia’s latest GDP growth rate QoQ indicate?

The 0.00% growth rate signals economic stagnation, reflecting weak domestic demand and external headwinds.

How does Latvia’s GDP growth affect monetary policy?

Slower growth pressures the central bank to balance inflation control with growth support, potentially moderating rate hikes.

What are the main risks to Latvia’s economic outlook?

Geopolitical tensions, energy price volatility, and tighter financial conditions pose significant downside risks.

Final Takeaway: Latvia’s flat GDP growth in Q4 2025 highlights a critical juncture. Without decisive policy action and structural reforms, the economy risks prolonged stagnation amid mounting external pressures.

This has been drafted with AI assistance and then thoroughly reviewed, refined, and approved by our human editorial team to ensure accuracy, and originality.