Improved business climate observed during Latvian seasons
In the heart of May 2025, Latvia's economic landscape began to show promising signs of recovery. The Employment Expectations Indicator, a key indicator of future job growth, surged to 101.2, marking a significant departure from the long-term average value of 100 in the preceding months.
The construction sector, a crucial component of the country's economy, has been on an upward trajectory since the beginning of the year, according to seasonally unadjusted data. The current confidence indicator in construction, as reflected in these data, was -7.6 in May, but it has risen by 3.0 percentage points compared to April, reaching the highest value since February 2022.
The economic sentiment indicator in Latvia, another important measure, stood at 98.6 in May, up from 98.1 in the previous month. This increase was not limited to the construction sector alone. In the manufacturing and retail trade sectors, business confidence has been on the rise, with enterprises perceiving a better business environment compared to previous months. For instance, in July 2025, the manufacturing and retail sectors showed a notable improvement in sentiment.
Economic uncertainty has decreased in the manufacturing and services sectors as of July 2025, indicating growing optimism or reduced perceived risks, while it slightly increased in other sectors. The Economic Uncertainty Indicator, which reflects how uncertain businesses feel about the economy, has shown a reduction in uncertainty in manufacturing and services, suggesting that firms feel more confident about future conditions.
On a broader scale, the manufacturing sector in the Eurozone, which includes Latvia, experienced the slowest contraction since July 2022 by July 2025. Despite ongoing demand weaknesses and new order declines, output grew modestly and job losses eased, even as business confidence slightly dipped but stayed above the long-term average. This trend towards stabilization after earlier downturns is a positive sign for the region.
The confidence indicator in retail trade was 1.0 according to seasonally adjusted data in May, but it has reduced by 1.7 percentage points compared to the previous month. Contrastingly, the confidence indicator in manufacturing, also according to seasonally adjusted data, was -3.8 in May but has risen by 3.0 percentage points compared to the previous month, reaching the highest value since July 2022.
In May 2025, the Economic Uncertainty Indicator decreased in all four business sectors surveyed: manufacturing (5.3 percentage points), construction (2.8 percentage points), services sector (2.8 percentage points), and retail trade (2.4 percentage points). Out of 23 manufacturing sectors surveyed in May, compared to the previous month, the business environment improved in 11 sectors, worsened in 11 sectors, and remained unchanged in one sector.
The seasonal business environment in retail trade reaches its maximum values in annual terms in May and June. In May, the seasonally unadjusted confidence indicator in construction reached a positive value (1.9) for the first time since July 2021. However, it's worth noting that the total uncertainty indicator increased by 0.4 percentage points in May due to a significant rise in consumers' assessments. The seasonally adjusted confidence indicator in the services sector deteriorated by 1.2 percentage points compared to April.
In summary, from May 2022 to mid-2025, Latvia's manufacturing and retail sectors have seen improving economic sentiment and business confidence, accompanied by a decrease in economic uncertainty in manufacturing and services. The construction sector's precise trend is less documented but likely reflects similar cautious optimism. The overall economic uncertainty in key sectors has declined, signaling gradual normalization in business outlooks following periods of volatility.
The decline in economic uncertainty in the manufacturing and services sectors, as reflected by the Economic Uncertainty Indicator, suggests that businesses in these sectors are feeling more confident about future conditions.
The increased business confidence in the manufacturing and retail sectors, along with the decreased economic uncertainty, indicates a growing sense of optimism and reduced perceived risks for businesses in Latvia.
