Latvia’s central bank, the Bank of Latvia, has lowered its GDP forecast for 2026-2028 markedly, LSM reports. GDP growth will amount to 2.0% in 2026, to 2.4% in 2027, and to 3.0% in 2028, according to the latest forecast. In December 2025, the central bank had projected that the GDP would grow by 2.8% in 2026, by 2.9% in 2027, and by 3.2% in 2028. The central bank noted that external shocks were slowing down growth and keeping inflation high, dampening external demand and increasing consumer and investor caution.
The Bank of Latvia projects that Latvia’s annual inflation will reach 3.6% in 2026, 3.8% in 2027, and 3.4% in 2028. Earlier, the central bank had projected annual inflation of 3.2% in 2026, 2.9% in 2027, and 3.6% in 2028. Core inflation will amount to 3.3% in 2026, to 4.0% in 2027, and to 4.3% in 2027, LETA reports. Gross wages will grow by 7.4% in 2026, by 7.3% in 2027, and by 7.5% in 2028, according to the forecast, LETA reports. Unemployment will reach 6.7% in 2026, before falling to 6.5% in 2027 and 6.3% in 2028.
The central bank expects the state budget deficit to be slightly above 3% of GDP in 2026, which is largely unchanged from previous projections. High defence spending, while becoming increasingly important drivers of economic growth, will raise the budget deficit to nearly 5% of GDP in two years, however. Also, rising budget expenditure will increase the state’s borrowing needs significantly. The public debt ratio will therefore increase from 46.0% of GDP in 2025 to over 51% of GDP by 2028, the central bank estimates.