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Internal Market, Industry, Entrepreneurship and SMEs
2 MARCH 2022
Latvia - ECSO country fact sheet

In 2021, Latvian GDP is expected to grow by 4.7% reaching EUR 28.0 billion.

Latvia’s GDP totalled EUR 26.7 billion in 2020, recording a 3.6% decline from the previous year. This is lower than the growth experienced in 2019 (2.0%), which is explained by the outbreak of the COVID-19 pandemic and subsequent measures taken to contain the virus. Notwithstanding, since 2010, Latvia’s GDP has grown by 28.8%.

The number of enterprises in the Latvian broad construction sector increased by 48.6% between 2010 and 2020, totalling 31,903. This growth was mainly driven by the increase in the number of enterprises in the architectural and engineering activities (+98.1%), the narrow construction (+93.2%), the manufacturing (+36.7%), and the real estate activities (+18.6%) sub‑sectors over the same reference period.

In parallel, the volume index of production in the broad construction sector recorded an increase of 27.4% during 2015-2020, mainly driven by a 48.8% increase in the construction of buildings and a 7.2% growth in the construction of civil engineering, over the same period.

Similarly, the turnover of the broad construction sector grew by 79.4% between 2010 and 2018, reaching EUR 8.5 billion. It further increased to EUR 9.0 billion in 2020, marking a 91.2% acceleration since 2010. This overall increase was mainly driven by the turnover growth in the manufacturing (+119.7%), narrow construction (+92.2%), the architectural and engineering activities (+78.6%), and the real estate activities (+65.3%) sub-sectors over the 2010‑2020 period.

In parallel, the gross operating rate of the broad construction sector, which is used to assess the profitability of the sector, stood at 16.1% in 2018, 1.1 percentage point (pps) above the rate registered in 2010 (15.0%). The real estate activities sub-sector registered the largest profit margin in sales (36.1%) in 2018, followed by the architectural and engineering activities (16.8%), the manufacturing (15.4%) and the narrow construction (9.7%) sub-sectors.

In terms of employment, there were 144,831 persons employed in the Latvian broad construction sector, registering a 38.1% increase in comparison to the 2010 level (104,894 persons). This was mainly driven by the growth registered in the number of persons employed in the architectural and engineering activities sub-sector (+63.5%) followed by the narrow construction (+53.3%), the manufacturing (+40.4%) sub‑sectors, over the 2010-2020 period.

Number of enterprises in the narrow construction sub-sector between 2010 and 2020
Number of persons employed in the narrow construction sub-sector between 2010 and 2020
House price index for existing dwellings between 2015 and 2020

Skills shortage and mismatch are the main obstacles to the sustainable growth of the Latvian construction sector. In fact, low-skilled workers are in lower demand and face higher unemployment. The number of vacancies in the construction sector has increased in 2020, indicating a severe shortage of manpower across skillsets. The country has adopted a construction industry development strategy for 2017-2024 to address various industry issues, such as, ensuring a qualified workforce, increasing productivity, and improving the quality of construction services. Moreover, the government has introduced preferential conditions to attract highly qualified specialists from abroad in the identified professions.

The housing market is relatively dynamic and resilient despite the COVID-19 pandemic. Between 2015 and 2020, the house price index for existing dwellings grew by 45.4%. According to data published by Eurostat, between 2010 and the second quarter of 2021 house prices in Latvia have increased by almost double (+99.0%).

The demand for housing has risen following the introduction of the Housing Guarantee Programme, which provides guarantees on mortgages to support the purchase and/or construction and renovation of a first home. The programme also enables families and young professionals to obtain a mortgage against lower down payment than banks would normally require. As of November 2020, the programme has supported more than 14,000 housing guarantees.

In November 2020, the Construction Board of Riga City Council adopted a principle of a Green Corridor for sizeable development projects to assist more speedy advancement of the largest projects. Currently, the Green Corridor is available in the permitting process of buildings of the second and third category if they envisage construction of more than 100 apartments.

The Recovery and Resilience Plan (RRP) of Latvia will be financed by EUR 1.8 billion in grants from the European Commission. 38.0% of the plan will support climate objectives and 21.0% of the plan will foster the digital transition .

The plan includes providing support for the green transition through investments of EUR 295.0 million into overhaul of the Riga metropolitan area transport, EUR 248.0 million in energy and energy‑efficient and renovation of public and private buildings and EUR 80.0 million will be invested for the modernisation and greening of electricity networks. The country will invest EUR 12.5 million for increasing connectivity with the deployment of high-speed broadband, EUR 129.0 million in the digital transformation of the public sector and the digitalisation of businesses. Furthermore, as per the plan, the country will invest EUR 43.0 million towards affordable housing. The plan also includes two measures on connectivity infrastructure: last-mile connectivity in rural areas and construction of passive infrastructure on the Via Baltic 5G corridor.

In terms of the civil engineering market, Latvia has launched its first public‑private partnership project to design and construct the Kekava bypass on the European Route E67. In July 2021, The Nordic Investment Bank (NIB) co-financed the project through a 21-year loan agreement of EUR 61.1 million. In May 2021, the construction of the first round of the east highway from Leriku street to Vietalva street in Riga was launched. In November 2021, tenders for the procurement of the main railway construction work of the Rail Baltica project in Latvia was announced. The project is expected to be completed in 2025. Further, the country has begun investing in new trains to increase the attractiveness of rail commutes and thereby increase the use of public transport for commuting.

Overall, the Latvian construction sector has a positive outlook in the long-term. The policy and investments initiatives taken by the government for the infrastructure and housing market are expected to drive the growth of the construction sector. In addition, investment in energy efficiency measures towards apartment buildings, digitalisation of the economy and EU backed projects are expected to dominate the sector’s growth.