Assessing Latvia's Present Trade Imbalance
In a noteworthy development, Latvia experienced a significant surge in foreign direct investment (FDI) in the fourth quarter of 2024. The inflow of FDI reached 4.2% of the country's GDP, or 461 million euros, marking a substantial increase.
The main factors contributing to this growth include a significant improvement in the investment climate, targeted support from government and diplomatic services, and enhanced export market access. This strategic focus on creating a favourable investment environment has been reflected in a 50% increase in new foreign investment projects in Latvia compared to 2023, particularly in financial services and other emerging sectors.
Historical data and investment attractiveness reports suggest that sectors such as financial services, manufacturing, and technology have been robust areas for FDI in Latvia. The overall trade data also shows an increase in exports from Latvia, primarily in goods, which aligns with growth in related manufacturing and export-oriented sectors.
The largest investments in FDI were made in trade, the energy sector, and professional, scientific, and technical services. The professional services sector, manufacturing, and energy sectors were the largest recipients of foreign investment inflows.
On the trade front, exports of chemical goods and wood products increased in 2024, while exports of machinery and electrical equipment decreased. However, goods exports decreased only slightly, by approximately 2%. Exports of wood products increased at the end of 2024, along with a higher manufacturing output than in the third quarter.
Imports, on the other hand, showed a mixed picture. Imports of construction services were twice as large in 2024, related to the construction of various large projects in Latvia. Imports of machinery and electronics also fell, partially due to a decline in re-exports. However, goods imports in 2024 decreased by approximately 3% compared to the previous year.
Comparing the last quarter of 2024 to the end of 2023, imports of metals and plastics declined, while imports of wood products and vehicles rose. The air transport sector continued to grow, with road transport rebounding more quickly.
The increase in FDI has been driven by strong cooperation between the public sector, private businesses, and academia, as well as the government’s active efforts to boost visibility, support export growth especially in non-EU countries, and attract international investors and partners.
In conclusion, the surge in FDI in Latvia in Q4 2024 can be attributed to a combination of factors, including improved investment climate, sectoral growth, and strategic efforts to attract foreign investment. The sectors with the largest investments are expected to be financial services, manufacturing, and technology, as indicated by project increases and export growth patterns.
- The European Union (EU) has become a significant investor in the energy sector and professional, scientific, and technical services in Latvia, aligning with the country's strategic focus on creating a favorable investment environment.
- In the transportation industry, air travel continued to grow, and road transport rebounded more quickly, indicating an increased interest in Latvia's infrastructure.
- The business sector, particularly financial services, manufacturing, and technology, has witnessed an increase in foreign investment, as evidenced by a 50% surge in new foreign investment projects in Latvia compared to 2023.
- Investing in emerging sectors such as financial services and technology has been a fruitful decision for foreign investors, as these sectors have proven to be robust areas for foreign direct investment (FDI) in Latvia.
