Latvia's current account deficit was 2.1% of GDP in 2024

The end of the year was slightly more positive in terms of exports: both goods and services exports increased, contributing positively to GDP in the fourth quarter of 2024. However, on an annual basis, exports still slightly declined (similar to the overall economy). The inflow of European Union funds also improved the current account balance at the end of the year, leading to a significantly higher surplus in secondary income.

Foreign investment remains robust

The inflows of foreign direct investment in the fourth quarter of 2024 also rose, reaching 4.2% of GDP or 461 million euro. The largest investments were made in trade, the energy sector, and, as usual, in professional, scientific, and technical services. Sweden, Lithuania, and the Netherlands were the largest investors.

Throughout the year, the inflow of foreign direct investment remained at a historically average level – 2.8% of GDP or 1.1 billion euro. In annual terms, the largest inflows were seen in the previously mentioned professional services sector, as well as in the manufacturing and energy sectors, primarily from Sweden, Lithuania, the Netherlands, and Germany.

Goods exports increased toward the end of the year

In 2024, changes in goods exports were overall minor, with the export value decreasing only slightly – by approximately 2%. Export prices have also fallen somewhat, resulting in only a minor decline in volume. The external environment remained unfavourable for exports. The previous year was challenging for the economies of Latvia's significant export partners (Estonia, Germany), with only Lithuania faring better. Additional future uncertainties are caused by US import tariffs and trade wars. They will have little direct impact on Latvia's exports; however, the indirect impact, manifesting through trade partners (other European Union countries), could be greater.

At the end of the last year, exports of wood products increased along with a higher manufacturing output than in the third quarter. It also showed slight growth compared to the overall performance in 2023. The decline in interest rates and the rise in construction activity abroad will continue to support the growth of these goods exports. In 2024, exports of machinery and electrical equipment fell, reflecting the impact of sanctions against Russia as exports to Russia and countries with close ties to Russia dwindled, but exports of chemical goods, along with wood products, increased.

In 2024, goods imports declined more rapidly than goods exports, improving the current account balance

Following weak growth in domestic consumption and investment, goods imports saw no significant changes – at the end of the last year, they were similar to the value in the last quarter of 2023, but overall, the value of goods imports decreased by approximately 3% over the year. Compared to the third quarter, changes by product group in the last quarter of the year were minor – for example, imports of metals and plastics declined, whereas imports of wood products and vehicles rose (this is most likely related to the further trade of these vehicles to, for example, Estonia, where vehicle registration taxes changed as of early this year). In 2024, the largest overall decrease was seen in imports of mineral products (significantly lower gas imports, for example, due to lower prices). Imports of machinery and electronics also fell (partially due to a decline in re-exports). An increase was observed in the value of imports of agricultural and food products – the prices of these commodities remain high on the global market.

Services exports in a faster stream

Contrary to the weak trends in goods trade, services exports are flowing faster. In the fourth quarter of the last year, they were as large as in the third quarter – at a historically high level. Compared to the end of 2023, both transport services and travel exports were higher. The value continued to grow in the air transport sector, with road transport rebounding more quickly (potentially driven by positive changes in the European Union's mobility package), the Christmas market attracting greater tourist interest, and ICT services exports increasing. Accordingly, the year as a whole has been quite positive for all the services listed before. Moreover, services are currently the driving force of exports.

Services imports are increasingly driven by foreign travel, facilitated by the improvement in the population's purchasing power. It is also observed that imports of construction services are rapidly increasing – in 2024, they were twice as large as in 2022, which is related to the construction of various large projects in Latvia.