OECD’s periodic surveys of the Latvian economy. Each edition surveys the major challenges faced by the country, evaluates the short-term outlook, and makes specific policy recommendations. Special chapters take a more detailed look at specific challenges. Extensive statistical information is included in charts and graphs.

Russia’s war of aggression against Ukraine has led to higher energy prices and disruptions in trade and supply chains, weighing on economic growth. Economic convergence had already slowed down before the pandemic, calling for accelerating structural reforms. Rising spending pressures related to defence, internal security, health and old age poverty need to be addressed by raising spending efficiency and tax revenue, while the tax burden should be shifted from labour towards other income, property, and environmental taxes. Continuing to improve the capacity of the public sector, fostering investment and innovation and addressing skilled labour shortages are key for raising potential growth. Low credit supply is a main factor for weak investment and should be tackled by fostering competition and deepening capital markets. High informality, which hinders access to finance and distorts the level playing field, should be addressed by reducing labour taxes for low-wage earners, improving tax enforcement and continuing to fight corruption. Strengthening the power of the Competition Council to enforce competitive neutrality of state-owned enterprises and challenge regulation that restricts competition would help to foster business dynamism and innovation. Addressing skilled labour shortages will require facilitating skilled migration and investing more in human capital. SPECIAL FEATURE: RAISING INVESTMENT TO SUPPORT GROWTH

Latvia enjoys strong economic growth and the catch up with living standards in higher income OECD countries continues. Much remains to be done, though, to close the remaining gap and improve equal access to social protection and economic opportunities. Latvia faces one of the fastest declines in its working age population among OECD countries due to ageing and migration. Strong productivity growth is needed to counter this demographic challenge and improve living standards faster.

Latvia’s economy has grown robustly in recent years on the back of a strong track record in implementing structural reforms, despite a challenging international environment. Rising wages have supported household consumption.

Luxembourg recovered quickly from the COVID-19 pandemic thanks to extensive policy support. However, the impact of the war in Ukraine is exacerbating inflationary pressures, alongside labour market shortages.

Since its independence, Estonia has made tremendous progress towards greater economic prosperity. Estonia enjoys solid institutions, political stability, a strong and credible fiscal policy, as well as a robust financial sector. Estonia is also a frontrunner in digital governance and innovation. Stable and secure digital services are in fact one of the factors that have allowed Estonia to cushion better than others the sanitary and economic shock from the pandemic.

Slovenia’s strong post-pandemic recovery has been hit by strong headwinds from the war in Ukraine, higher energy prices, and supply chain bottlenecks. At the same time, the strong labour market performance has led to historically high employment, low unemployment and widespread labour shortages.

Lithuania’s economy exited the COVID-19-crisis successfully and was growing fast until early 2022, buoyed by rising exports and rapid integration into global value chains. However, with Russia’s aggression of Ukraine continuing and its consequences spreading, the outlook has darkened.

The Slovak economy has been relatively resilient to the energy crisis, but growth has slowed amid high inflation, weakening foreign demand and tightening financial conditions. The pandemic and the energy crisis have deteriorated public finances; steady fiscal consolidation is now needed to rebuild fiscal buffers and improve long-term fiscal sustainability in the face of rapid population ageing. Sustaining economic convergence and facilitating inclusive structural change requires improving skill provision at all stages of the learning cycle, fostering the domestic innovation capacity and improving the business environment.

Latvia’s public employment service, the State Employment Agency (SEA), is undertaking a modernisation of its service delivery. This review discusses the SEA’s digitalisation needs and strategy to guide its modernisation efforts. It provides a detailed assessment of the SEA’s digital infrastructure and key recommendations concerning its IT system, analytical capacity and digital tools for jobseekers and employers. This report on Latvia is the fourteenth country study published in this series.