The Latvian GDP grew by 4.8% during 2018, the highest GDP growth rate since 2010. The growth was driven by consumer spending and strong investment levels supported by EU fund inflows.
The volume index of production in the broad construction sector increased by 20.6% between 2015 and 2018 after witnessing a major year-on-year (YoY) decline of 16.6% in 2016. Following the increase in production, the turnover of the sector amounted to EUR 9.1 billion in 2018, 92.9% above the bottom low of 2010. As a result, employment and the number of enterprises in the broad construction sector increased by 51.8% and 67.8% respectively between 2010 and 2018.
The housing market has been on the revival path since 2010, supported by declining mortgage rates (from 3.7% in 2010 to 2.2% in 2018) and greater household purchasing power.
The demand for housing has been boosted by introduction of the Housing Guarantee Programme, providing guarantees on mortgages to support the purchase and/or construction and renovation of the first home.
In terms of workforce, the Latvian construction sector is facing a shortage of skilled workers, especially construction managers, water and wastewater engineers and roofers. Additionally, persisting corruption risks in the Latvian construction sector act as a barrier to its development.
The outlook for Latvian construction sector is positive in the short to medium term, driven by EU fund inflows and domestic consumption. However, the sector faces challenges in terms of availability of skilled workforce and lack of effective implementation of various projects. The country’s over-reliance on EU funds, informal employment, and lack of access to finance continue to act as a deterrent for potential new investors.