Editing Economy of Latvia (section)

==Economic history==

For centuries under [[Hanseatic League|Hanseatic]] and German influence and then during its inter-war independence, Latvia used its geographic location as an important east–west commercial and trading centre. Industry served local markets, while timber, paper and agricultural products were Latvia's main exports. 

Prior to [[World War I]], Latvia was an advanced manufacturing hub within the [[Russian Empire]], primarily serving the Russian market.<ref name=":0">{{Cite journal |last1=Klimantas |first1=Adomas |last2=Norkus |first2=Zenonas |last3=Markevičiūtė |first3=Jurgita |last4=Grytten |first4=Ola Honningdal |last5=Šiliņš |first5=Jānis |date=2023 |title=Reinventing perished "Belgium of the East": new estimates of GDP for inter-war Latvia (1920–1939) |url=https://doi.org/10.1007/s11698-023-00275-y |journal=Cliometrica |language=en |doi=10.1007/s11698-023-00275-y |issn=1863-2513}}</ref> After attaining independence in 1918, Latvia lost its status as an advanced manufacturing hub.<ref name=":0" /> Latvia sought in the interwar period to become an international exporter of food and to re-industrialize.<ref name=":0" /> Latvia experienced growth in GDP per capita during the interwar period, although some economic historians have argued that there was stagnation in the period of the authoritarian [[Kārlis Ulmanis|Karlis Ulmanis]] regime (1934–1940).<ref name=":0" />

After reestablishing its independence, Latvia proceeded with market-oriented reforms, albeit at a measured pace. Its freely traded currency, the lat, was introduced in 1993 and held steady, or appreciated, against major world currencies. Inflation was reduced from 958.6% in 1992 to 25% by 1995 and 1.4% by 2002.

After contracting substantially between 1991 and 1995, the economy steadied in late 1994, led by a recovery in light industry and a boom in commerce and finance. This recovery was interrupted twice, first by a banking crisis and the bankruptcy of ''Banka Baltija'', Latvia's largest bank, in 1995 and second by a severe crisis in the financial system of neighbouring [[Russia]] in 1998. After 2000, Latvian GDP grew by 6–8% a year for 4 consecutive years. Latvia's state budget was balanced in 1997 but the [[1998 Russian financial crisis]] resulted in large deficits, which were reduced from 4% of GDP in 1999 to 1.8% in 2003. These deficits were smaller than in most of the other countries joining the European Union in 2004.<ref>{{Cite web |title=Latvia Economy, Politics and GDP Growth Summary - The Economist Intelligence Unit |url=https://country.eiu.com/latvia |access-date=2024-07-04 |website=country.eiu.com}}</ref>

Until the middle of 2008, Latvia had the fastest developing economy in Europe. In 2003, GDP growth was 7.5% and inflation was 2.9%. The centrally planned system of the Soviet period was replaced with a structure based on free-market principles. In 2005, private sector share in GDP was 70%.<ref>Ruta Aidis, Friederike Welter: ''[https://books.google.com/books?id=S1yqa7MlLgUC The Cutting Edge: Innovation and Entrepreneurship in New Europe]'', Edward Elgar Publishing, 2008, p. 32</ref> Recovery in light industry and [[Riga|Riga's]] emergence as a regional financial and commercial centre offset shrinkage of the state-owned industrial sector and agriculture. The official unemployment figure was held steady in the 7%–10% range.

===Economic contraction in 2008–2010===
{{Main|2008 Latvian financial crisis|Baltic states housing bubble}}
The [[2008 financial crisis]] severely disrupted the Latvian economy, primarily as a result of the easy credit bubble that began building up during 2004. The bubble burst leading to a rapidly weakening economy, resulting in a budget, wage and unemployment crisis.<ref>{{cite news| url=http://news.bbc.co.uk/2/hi/8496925.stm| publisher=BBC | first=McGuinness | last=Damien | title=In Pictures: Latvia economy reels in recession | date=4 February 2010}}</ref> Latvia had the worst economic performance in 2009, with annual growth rate averaging −18%.

The Latvian economy entered a phase of fiscal contraction during the second half of 2008 after an extended period of credit-based speculation and unrealistic inflation of real estate values. The national account deficit for 2007, for example, represented more than 22% of the GDP for the year while inflation was running at 10%.<ref>{{cite web|url=https://www.cia.gov/the-world-factbook/countries/latvia/|title=Latvia |publisher=[[CIA]]|access-date=15 December 2008}}</ref>
By 2009 unemployment rose to 23% and was the highest in the EU.<ref>{{cite news| url=http://news.bbc.co.uk/1/hi/technology/8533641.stm | publisher=BBC News | title=Robin Hood hacker exposes bankers | date=24 February 2010 | access-date=1 May 2010}}</ref>

[[Paul Krugman]], the Nobel Laureate in economics for 2008, wrote in his ''[[The New York Times|New York Times]]'' Op-Ed column for 15 December 2008:

''"The acutest problems are on Europe's periphery, where many smaller economies are experiencing crises strongly reminiscent of past crises in Latin America and Asia: Latvia is the new Argentina".''<ref>{{cite news|url=https://www.nytimes.com/2008/12/15/opinion/15krugman.html |title=European Crass Warfare |work=[[The New York Times]]|access-date=15 December 2008 | first=Paul | last=Krugman | date=15 December 2008}}</ref>

By August 2009, Latvia's GDP had fallen by 20% year on year, with [[Standard & Poor's]] predicting a further 16% contraction to come. The [[International Monetary Fund]] suggested a [[devaluation]] of Latvia's currency, but the European Union objected to this, on the grounds that the majority of Latvia's debt was denominated in foreign currencies.<ref>{{cite news |url=https://www.telegraph.co.uk/finance/financetopics/financialcrisis/6006322/SandP-downgrades-Baltic-states-debt-ratings.html|archive-url=https://web.archive.org/web/20090813100421/http://www.telegraph.co.uk/finance/financetopics/financialcrisis/6006322/SandP-downgrades-Baltic-states-debt-ratings.html|url-status=dead|archive-date=13 August 2009|title=S&P downgrades Baltic states' debt ratings |last=Evans-Pritchard|first=Ambrose |work=[[The Daily Telegraph]]|location=London |date=10 August 2009}}</ref> Financial economist [[Michael Hudson (economist)|Michael Hudson]] has advocated for redenominating foreign currency liabilities in Latvian lats before devaluing.

However, by 2010 there were indications that Latvia's policy of [[internal devaluation]] was successful.<ref>{{Cite web |url=http://www.bbn.ee/article/2010/02/08/Moody_s_Latvian_economy_is_stabilizing |title=Baltic Business News, 8 February 2010 |access-date=17 January 2012 |archive-date=6 March 2016 |archive-url=https://web.archive.org/web/20160306025950/http://bbn.ee/article/2010/02/08/moody_s_latvian_economy_is_stabilizing |url-status=dead }}</ref>

===Economic recovery 2010–2012===

The economic situation has since 2010 improved,<ref>[http://www.bbn.ee/article/2010/02/08/Moody_s_Latvian_economy_is_stabilizing Moody's: Latvian economy is stabilizing] {{Webarchive|url=https://web.archive.org/web/20160306025950/http://bbn.ee/article/2010/02/08/moody_s_latvian_economy_is_stabilizing |date=6 March 2016 }} Baltic Business News, Retrieved on 3 September 2012</ref> and by 2012 Latvia was described as a success by IMF managing director Christine Lagarde<ref>[http://www.leta.lv/eng/home/important/619F6516-7334-4B81-B10C-8D4FA60B09EF/ Those who change will endure – IMF managing director] {{Webarchive|url=https://web.archive.org/web/20190810223959/http://www.leta.lv/eng/home/important/619F6516-7334-4B81-B10C-8D4FA60B09EF/ |date=10 August 2019 }} [[LETA]] Retrieved on 5 June 2012</ref> showing strong growth forecasts. The Latvian economy grew by 5.5% in 2011<ref>[http://www.danskebanka.lv/en/about/press/2012/danske-bank-expect-latvian-gdp-to-grow/ Danske Bank: we expect Latvian GDP to grow by 2.0% y/y in 2012] Retrieved on 3 September 2012</ref> and by 5.6% in 2012 reaching the highest rate of growth in Europe.<ref>[http://www.macroeconomics.lv/gdp-growth-latvia-56-fastest-europe-growth-moderate-year GDP growth in Latvia, at 5.6%, the fastest in Europe; growth to moderate this year] {{webarchive|url=https://web.archive.org/web/20131022124109/http://www.macroeconomics.lv/gdp-growth-latvia-56-fastest-europe-growth-moderate-year |date=22 October 2013 }}</ref> The GDP surpassed the pre-crisis level in 2018.<ref>{{Cite web|title=GDP (constant 2015 US$) – Latvia {{!}} Data|url=https://data.worldbank.org/indicator/NY.GDP.MKTP.KD?locations=LV|access-date=2021-12-01|website=data.worldbank.org}}</ref>

===Economic issues 2022-23===

The [[Russian invasion of Ukraine]] in February 2022 caused some economic problems in Latvia. Real GDP growth slowed to 2.8 percent in 2022 from 4.3 percent in 2021. Russia was a major trade partner and EU sanctions impacted this. Dramatic rises in the cost of energy, the need to seek alternative sources of gas and oil as well as logistics issues resulted in inflation averaging 17.2% in 2022 before falling back to single digits in 2023.<ref>{{cite web |title=Republic of Latvia: Staff Concluding Statement of the 2023 Article IV Mission |url=https://www.imf.org/en/News/Articles/2023/06/13/mcs061323-republic-of-latvia-staff-concluding-statement-2023-article-iv-mission |date=13 June 2023}}</ref>