Swedbank’s chief economist in Latvia Līva Zorgenfreija said scientific advances, US election results, and the hope of a Brexit deal will allow the world to take a deep breath in 2021. It is pointed out that, atypical for a crisis, the overall savings of Latvian families have rapidly increased during 2020, as the wealthiest members of society have suffered less from the crisis and have not spent so much not because they had nothing to spend, but no adequate option. At the beginning of this year, the restrictions will still delay economic activity; however, once the threat of the virus and consumption restrictions are reduced, growth will return in sectors that have suffered the most so far such as restaurants, entertainment, and culture, tourism, air transport. However, pre-crisis levels in these areas will not be seen for some time. Relatively good growth is expected in the export-dependent processing industry: this sector suffered in the first wave of the crisis but was able to recover quickly. Retail has also shown high flexibility in 2020: it will continue to grow later this year.

In Latvia, the virus has not had such a strong impact on the construction sector, which offers hope that the future will become rosy, as state and EU funding will help development. However, a typical problem with large investment projects is delays: that’s why the construction sector is expected to start to pick up speeds only around the second half of the year. Due to the second wave of the pandemic, changes in GDP will remain negative in the first months of the year, with growth expected to return in the second quarter. And although the effect of vaccinations will reach macroeconomic levels in the second quarter, the economic effect of the virus will be a process that in any case will continue in the second half of the year.

During 2020, the pandemic has shown that it does not adversely affect exports of Latvian goods: some sectors have suffered, while others have benefited. After a surprisingly good 2020, the woodworking industry could experience a drop in production, caused by a large round lumber deficit. However, the recovery of the global economy will create a very positive environment for metalworking and mechanical engineering. Agriculture and forestry were the most successful sectors in 2020. According to analysts, among the sectors that export services, the hotel, and restaurant sector will experience the most difficult time in the first quarter of 2021, as strict restrictions will remain in place. Also, there won’t be many foreign tourists around. However, the situation is expected to improve rapidly in the following quarters. Pre-crisis levels are unlikely to be reached later this year: they won’t arrive until 2022. The leisure and entertainment industry is expected to recover more slowly. This year is expected to be very beneficial for IT and business services, while construction remains the most difficult sector to predict. The vaccination process will allow many sectors to slowly recover and restart operations, so there will be a particularly strong backlash for the economy in the second and third quarters of 2021. A relatively stable labor market situation provides a good basis for recovery: unemployment is expected to rise, but support measures will prevent it from achieving unreasonably rapid growth rates.

If infection rates stabilize in January-February and the vaccine helps ensure a gradual recovery of the population, you can say lucky. The best opportunities will come in the summer when the risks are low; however, this could reduce the desire to get vaccinated, increasing the risks of a new outbreak in the fall. Positive economic prospects will stimulate business confidence to move through the implementation of new projects: domestic consumption will recover, growth will be observed in the tourism, entertainment, and hotel sectors, which have so far suffered the greatest impact. The great hope is placed on the active contributions of ICT technologies to growth, as well as on the correction of the global network. However, to ensure this, it is necessary to support investments in innovative processes.

According to Citadele Bank economist Mārtiš Ābolièš, the first half of 2021 will be very different from the second, allowing Latvia to grow GDP by about 3.3%. Some concerns are caused by the fact that 2020 growth rates have significantly flattened in sectors indirectly affected by Covid-19, such as IT services, but 2022 could be very good if massive EU investment flows into the economy, so much so that GDP growth could even exceed 5%. The economist also noted that the economic recovery in the second half of 2020 was unexpectedly rapid, albeit partial: the situation is still different in different sectors of the national economy. The Covid-19 pandemic has changed the structure of consumption and the economy: in the goods sectors, such as retail and the processing industry, turnover is close to or even above the pre-Covid-19 level. Some service provider sectors are in a difficult situation and their operations are significantly limited. The good news is that service providers will recover as soon as the epidemiological situation allows. The general mood of consumers is currently at a good level and new industrial orders are on the rise in Latvia. The general mood index of the CEO of major global manufacturers reached its highest point since 2018 and global trade has substantially returned to its pre-Covid-19 level. This is why 2021 growth in the Latvian industry could reach 3-4%. At the same time, in the second half of the year, as the epidemiological situation improves, demand for services is expected to increase faster than demand for goods.