IDEAS home Printed from
   My bibliography  Save this article

Latvia: maintaining sustainable growth after the boom-bust years


  • Gatis Eglitis
  • Christian Weise


Latvia had been keen to join the euro area at the earliest opportunity, with entry in January 2008 the clear target. As the economy overheated, however, significant macro-economic imbalances accumulated which deferred these plans. Between 2005 and 2007, unsustainable GDP growth went hand in hand with a mounting current account deficit and a housing market spiralling out of control. When credit flows then abruptly reversed, the countryís GDP contracted dramatically. Latvia was placed in the EU/IMF-led financial assistance programme and was forced to carry out ambitious fiscal consolidation and structural reforms. Reallocating resources to the tradable sector was the first important step on the road to an exportdriven recovery. Under the burden of deleveraging and consolidation, the revival of domestic demand was slow at first. From 2011, however, supported by favourable labour market developments, growth in demand has accelerated. Latvia has reclaimed its position as the fastest-growing EU economy, however, the current level of growth is lower than the unstainable rates recorded in the boom years, and it is now seen as sustainable. Thanks to this balanced growth, Latvia has not been subject to the MIP since its launch in 2012. Despite the financial assistance-supported measures to preserve equity, the social burden of economic adjustment, as evidenced by poverty, social exclusion and emigration rates, has been high, but measures are being taken by the authorities to counter these effects. Continued commitment to prudent fiscal policies will be critical for the countryís economic future. The use of macro-prudential tools to reduce the risks posed by large non-resident financial flows, and the implementation of ambitious structural reforms will also play an important role.

Suggested Citation

  • Gatis Eglitis & Christian Weise, 2014. "Latvia: maintaining sustainable growth after the boom-bust years," Quarterly Report on the Euro Area (QREA), Directorate General Economic and Financial Affairs (DG ECFIN), European Commission, vol. 13(1), pages 35-39, April.
  • Handle: RePEc:euf:qreuro:0131-04

    Download full text from publisher

    File URL:
    Download Restriction: no

    More about this item




    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:euf:qreuro:0131-04. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (ECFIN INFO). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.