Latvia’s Central Bank Governor Urges Increased Productivity for Economic Growth

RIGA – Mārtiņš Kazāks, Governor of the Bank of Latvia, has emphasized the need for Latvian companies to pursue greater ambition for growth, not only within Latvia but likewise across Europe, to boost productivity and maintain economic competitiveness. Kazāks highlighted the importance of accelerating productivity growth to counter the effects of rising wages outpacing output.

Inflation Trends in Latvia and the Eurozone

While Latvia’s inflation rate currently exceeds the Eurozone average, the gap is narrowing. As of the latest data, inflation in Europe stands at 1.7 percent, compared to 2.6 percent in Latvia [1]. Kazāks identified food prices as a significant initial driver of inflation in early 2023, but noted their impact has diminished.

Wage Growth and Productivity Gap

A key concern raised by Governor Kazāks is the disparity between wage growth, and productivity. He noted that wages in Latvia have been increasing at a significantly faster rate than productivity for several years, averaging 8-10 percent annual growth [2]. While acknowledging that rising wages improve purchasing power, Kazāks warned that this trend, if unchecked, could lead to a loss of competitiveness and potentially trigger a recession.

The Need for Increased Ambition and Scale

Kazāks advocates for a shift in focus from simply increasing wages to accelerating productivity growth. He believes that Latvian companies need to be more ambitious in their growth strategies and expand their reach beyond the domestic market. He pointed to Lithuania as an example, where funding mechanisms support mergers and acquisitions to create larger, more efficient companies. He suggested that Latvia’s Development Finance Institution Altum could play a similar role in facilitating investment, robotization, and digitization [2].

Latvia’s Business Landscape

Kazāks observed that while Latvia has a number of highly productive companies, they are often too few in number and relatively small in scale. He noted that Latvian companies that are considered large domestically are often classified as medium-sized enterprises within the broader European context [4]. He emphasized the importance of fostering the development of larger, more “powerful” companies to compete effectively on a European level.

Kazāks’s Background and Role

Mārtiņš Kazāks has served as the Governor of the Bank of Latvia since December 2019, having been re-elected for a second term in February 2025 [2]. Prior to his role as Governor, he was a member of the Council of the Bank of Latvia and held positions as Chief Economist at Hansabank (now Swedbank) [1]. He holds degrees from the University of Latvia, University of Cambridge, and University of London [1].