Latvia’s current account balance for November 2025 plunged to a deficit of -€178 million, a stark reversal from October’s €96 million surplus and well below the consensus forecast of -€25 million. This reading, sourced from the Sigmanomics database, highlights renewed external imbalances amid a challenging global environment. The deficit is the largest since August’s -€296 million and contrasts sharply with the positive balances seen in April (+€67 million) and June (+€34 million). The volatility underscores Latvia’s sensitivity to trade shocks and capital flows in a period marked by geopolitical tensions and tightening monetary conditions.

Drivers this month

• Widening trade deficit due to weaker exports and rising import costs.
• Reduced EU fund inflows compared to previous months.
• Higher energy prices impacting the goods balance negatively.

Policy pulse

The current account deficit exceeds the Latvian central bank’s comfort zone, complicating monetary policy decisions. With inflation pressures persisting, the Bank of Latvia faces a balancing act between supporting growth and defending external stability.

Market lens

Immediate reaction: The EUR/LVL exchange rate depreciated by 0.30% within the first hour post-release, reflecting market concerns over external vulnerabilities. Short-term government bond yields rose modestly, signaling increased risk premia.

Latvia’s current account deficit of -€178 million in November 2025 represents a significant deterioration compared to the previous month’s surplus of €96 million and the 12-month average of approximately -€50 million. The Sigmanomics database shows a pattern of swings over the past eight months, with deficits peaking in May (-€190 million) and August (-€296 million), and intermittent recoveries in June and October. This volatility reflects Latvia’s open economy status and its dependence on trade and capital flows.

Monetary Policy & Financial Conditions

The Bank of Latvia has gradually tightened monetary policy since mid-2025, raising key interest rates by 75 basis points to counter inflation. These moves have increased borrowing costs, dampening domestic demand and import growth but also pressuring export competitiveness. Financial conditions remain moderately tight, with credit growth slowing to 3.20% YoY as of October.

Fiscal Policy & Government Budget

Fiscal policy remains prudent, with the government maintaining a slight surplus in the budget balance (0.40% of GDP) in Q3 2025. EU structural funds continue to support investment, though inflows have slowed recently, contributing to the current account swing. The government’s commitment to fiscal discipline provides some buffer against external shocks.

Market lens

Immediate reaction: EUR/LVL depreciated 0.30% post-release, reflecting concerns over external financing. The 2-year Latvian government bond yield rose 12 basis points, signaling increased risk perception. Breakeven inflation rates remained stable, indicating market confidence in monetary policy response.

Looking ahead, Latvia’s current account trajectory will depend on several factors including global trade conditions, energy prices, and domestic policy responses. The Sigmanomics database and historical patterns suggest three scenarios:

• Bullish (30% probability): Global demand recovers, energy prices stabilize, and export growth resumes, narrowing the deficit to below -€50 million by Q1 2026.
• Base (50% probability): Current external pressures persist with moderate export growth offset by import costs, keeping the deficit near -€150 million through early 2026.
• Bearish (20% probability): Geopolitical tensions escalate, energy prices spike, and EU fund inflows decline, pushing the deficit beyond -€250 million and straining external financing.

Monetary policy will likely remain cautious, balancing inflation control with external stability. Fiscal discipline and EU support remain critical buffers. However, sustained deficits could pressure the Latvian lats and increase borrowing costs, impacting growth.

Structural & Long-Run Trends

Latvia’s open economy and EU integration expose it to external shocks but also provide structural support through trade diversification and investment inflows. Long-run trends point to gradual current account normalization as competitiveness improves and energy transition reduces import dependency.

Latvia’s November 2025 current account deficit signals renewed external sector challenges amid a complex global backdrop. The sharp swing from surplus to deficit highlights the economy’s vulnerability to trade shocks and financial tightening. Policymakers face a delicate balancing act to maintain macroeconomic stability while supporting growth. Forward scenarios emphasize the importance of external conditions and domestic policy responses in shaping Latvia’s external balance trajectory.

Investors and market participants should monitor trade data, energy prices, and geopolitical developments closely. The current account’s volatility underscores the need for robust fiscal and monetary frameworks to mitigate risks. Latvia’s EU membership and structural reforms provide resilience, but external shocks remain a key risk factor.

Key Markets Likely to React to Current Account

Latvia’s current account developments typically influence currency markets, government bonds, and equity sectors linked to trade and energy. The following tradable symbols have historically shown sensitivity to Latvia’s external balance shifts, reflecting macro-financial linkages and investor sentiment.

• EURUSD – The EUR/USD pair often reacts to shifts in Latvia’s external balances due to eurozone trade linkages and capital flows.
• OMX – The Nordic-Baltic equity index reflects regional economic health and investor risk appetite tied to current account trends.
• BTCUSD – Bitcoin’s role as a risk barometer and alternative asset can correlate inversely with traditional currency pressures.
• EURNOK – Norway’s krone pair reacts to energy price shifts, which impact Latvia’s import costs and current account.
• SEB – A major Nordic bank with Baltic exposure, sensitive to regional economic and financial conditions.

Insight: Latvia’s Current Account vs. EURUSD Since 2020

Since 2020, Latvia’s current account deficits have generally coincided with EUR/USD depreciation, reflecting external pressures on the currency. The 2025 sharp deficit aligns with EUR/USD near multi-year lows, underscoring the currency’s sensitivity to external imbalances.

FAQs

What does Latvia’s current account deficit mean for its economy?

The deficit indicates Latvia is importing more goods, services, and capital than it exports, which may pressure its currency and external financing but can also reflect investment inflows.

How does the current account affect Latvia’s monetary policy?

A large deficit can limit monetary easing as it may weaken the currency and increase inflation, forcing the central bank to balance inflation control with growth support.

Why is the current account volatile in Latvia?

Latvia’s open economy, reliance on trade, energy imports, and EU fund flows cause fluctuations in the current account, especially amid global shocks and geopolitical risks.

Takeaway: Latvia’s November 2025 current account deficit signals renewed external vulnerabilities, demanding vigilant policy responses and close market monitoring to safeguard macroeconomic stability.

Updated 11/13/25

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