Each quarter, the Fiscal Discipline Council, like other independent fiscal institutions within the European Union member states, compiles a heat map of the economic cycle. Long-term data from the first quarter of 2000 to the fourth quarter of 2024 is available in MS Excel format [here].
In the fourth quarter of 2024, the composite economic heat map index declined to 0.1%, signaling a mild recession. Wage growth remained strong at 8.3%, supporting household incomes and pushing the median net wage to 1,019 euros. Wage growth rates between the public and private sectors have begun to converge — public sector wages grew by 8.4%, while private sector wages rose by 8.5%. However, signs of a cooling labor market emerged. The unemployment rate rose to 6.9%, employment declined, and job vacancies fell — particularly in the private sector, where the drop was nearly twice as steep as in the public sector. Capacity utilization saw a slight increase, reaching 72.4%, yet weak demand continued to weigh heavily on business activity, especially in manufacturing. The credit market showed signs of recovery. New lending for housing and business purposes grew rapidly, although growth in consumer credit slowed considerably. Foreign trade and current account indicators improved. Exports continued to grow, though at a slower pace than in the previous quarter. Core inflation in Latvia stood at 3.8%, remaining above the Eurozone average of 2.7%. Housing prices continued their upward trend, with the second-hand housing market experiencing its first sharp price increase since the end of 2022. Further analysis and insights can be found in the upcoming release of the Latvian Economic Heat Map for Q4 2024.
Source: Central Statistical Bureau, Bank of Latvia, Eurostat, FDC calculations
Labor Market and Business Activity in Latvia: Q4 2024 Overview
Wage growth continued in the fourth quarter of 2024, although the pace of growth showed signs of slowing. Compared to the same period in 2023, the average monthly gross wage increased by 8.3%. This marks a continued slowdown in wage growth, a trend that has been evident since early 2023. Wage growth in the private and public sectors is becoming more balanced. In the fourth quarter, private sector wages increased by 8.5%, reaching an average of 1,720 euros. In the public sector, wage growth was nearly identical at 8.4%, bringing the average gross wage to 1,809 euros — 89 euros more than in the private sector. The median gross wage in the fourth quarter stood at 1,401 euros, while the median net (take-home) wage was 1,019 euros. These figures mean that half of all employees in Latvia earn less than this amount, and half earn more.
Signs of Labor Market Cooling
There were moderate signs of softening in the labor market. The unemployment rate rose, employment declined, and the number of job vacancies continued to fall — especially in the private sector. Latvia’s unemployment rate increased to 6.9% in the fourth quarter, up by 0.2 percentage points from the previous quarter. This was higher than the EU average of 5.8%. Among the Baltic states, Estonia had the highest unemployment rate (7.5%), while Lithuania recorded the lowest (6.6%). Latvia’s employment rate dropped to 63.4%, down 0.8 percentage points from the third quarter. A total of 867,200 people aged 15 to 74 were employed — a 1.2% decrease year-on-year. The number of job vacancies continued to shrink. Compared to the fourth quarter of 2023, vacancies declined by 7.7%, and by 9.3% compared to the previous quarter. There were 20,800 unfilled positions in total. The private sector saw a steeper drop in vacancies (9.9%) than the public sector (5.3%), meaning job availability fell nearly twice as fast in private enterprises.
Business Activity Remains Constrained by Weak Demand
In the fourth quarter, capacity utilization increased only marginally, while insufficient demand remained a key barrier for many companies, particularly in manufacturing. Capacity utilization reached 72.4%, a modest increase of 0.3 percentage points from the third quarter. This remains below the Eurozone average of 77.2%. Throughout 2024, lack of demand continued to be a significant limiting factor for businesses. In manufacturing, this issue was especially prominent — 47.1% of firms surveyed by the Central Statistical Bureau cited it as a major constraint. Similar concerns were voiced in the construction sector (34.6%) and services sector (34.1%). Despite these challenges, there were small signs of optimism. The long-term economic sentiment indicator rose to 98.1% in the fourth quarter, up by 0.8 percentage points compared to the previous quarter.
Credit Market Rebounds While Consumer Loan Growth Slows
In the fourth quarter of 2024, Latvia’s credit market showed signs of strong recovery. New lending for housing and business purposes grew rapidly, although the pace of consumer credit growth slowed considerably. According to data from the Bank of Latvia, the total volume of outstanding loans increased by 1.4% compared to the same period in 2023. This included a 6.2% rise in household loans and a 5.6% increase in loans to non-financial corporations.
The growth in newly issued loans was particularly notable. Loans issued to households for housing purposes jumped by 58%, while loans to businesses soared by 81% compared to the fourth quarter of 2023 — a significant turnaround after years of sluggish activity. Meanwhile, consumer credit issued to households grew by just 2%, marking a sharp slowdown from previous quarters. Other types of household loans rose by 39%.
Foreign Trade and Current Account Indicators Improve
Latvia’s trade and external balance also showed positive developments. The trade deficit narrowed to 6.8% of GDP in Q4 2024, improving by 2.3 percentage points from the third quarter. Although the pace of export growth slowed, it remained positive at 0.5%, compared to 4.2% in the previous quarter. The current account registered a surplus of 0.8% of GDP. Within the current account structure, the primary income balance showed a small deficit (–0.3% of GDP), while the secondary income balance recorded a surplus of 2.7%.
Latvia’s core inflation remained steady in the fourth quarter, continuing to outpace the Eurozone average.
Core inflation in Latvia remained unchanged from the previous quarter, holding steady at 3.8% in Q4 2024. This was 1.1 percentage points higher than the Eurozone average of 2.7%, indicating continued inflationary pressure in Latvia compared to the broader region.
Housing Prices Continue to Climb, Driven by Second-Hand Market
Latvia’s housing market saw further price increases in the fourth quarter, particularly in the second-hand segment. Overall, house prices rose by 8.1%. While the growth in new home prices slowed to 4.1%, second-hand home prices surged by 9.2% — marking the first sharp increase in this segment since the end of 2022.