Economic growth will slow to 2.3% in 2022 and -0.2% in 2023, before rebounding to 2.3% in 2024. The negative confidence shock that followed Russia’s invasion of Ukraine as well as very high and broad-based inflation are weighing on private consumption. Business investment will continue to slow due to high uncertainty and worsening financial conditions, while high energy prices and lower external demand weigh on industrial production.
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Latvia has enjoyed continuing catch-up in per capita incomes with the more afﬂuent OECD countries through the pandemic, despite slow progress in vaccination. Fiscal policy has handled the health-system challenges while protecting jobs and ﬁrms but could do more to ease inequality and poverty, especially among the elderly. Latvia’s population has been shrinking for decades and will continue to do so. This means it must focus on increasing employment among those of working age. That implies a need to tackle the large gender wage gap that is discouraging women’s labour force participation, delay retirement and keep everyone in good health.
Bolstering the social safety net should become the top priority. The European Recovery and Resilience Mechanism and low interest rates offer a unique opportunity not only to mitigate the immediate consequences of the pandemic but also to enhance green and digital transition. Such investments should be complemented by measures that improve skills and facilitate the reallocation of labour and capital.
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2021 Structural Reform Priorities
Housing affordability and quality are pressing challenges in Latvia. While Latvian households spend, on average, less on housing than their OECD peers, many are stuck in poor quality housing. Residential investment has stagnated since 2008, and the housing stock has been insufficiently maintained. In the face of these challenges, public support for housing is limited and an underdeveloped rental market further limits affordable housing alternatives. This report provides an in-depth assessment of housing affordability challenges and identifies policy actions to address them. The report is the result of the work of an interdisciplinary team bringing together the Economics Department and the Directorate for Employment, Labour and Social Affairs. The report contributes to the cross-cutting OECD Horizontal Project on Housing.