The competition between Latvia's regional economies is becoming ever more interesting, because very different stories lie behind the overall growth figure. Last year the fastest-growing export economy was the Riga region. Zemgale and Vidzeme also had a fairly successful year. Kurzeme, on the other hand, saw the slowest growth, driven by the continuing decline in transit and fairly weak results in the engineering sectors. How sectoral development is shaping Latvia's regions, and how companies are benefiting from the ‘hottest’ global technology trends, is shown by a study of municipalities and sectors by Luminor bank economist Pēteris Strautiņš.
Looking at which municipalities had the highest income from goods-producing sectors per capita, the forest sector – forestry and wood processing – is led by Smiltene, Ventspils and Sigulda municipalities. In the engineering sectors – metalworking, mechanical engineering and electronics – Līvāni, Liepāja and Mārupe municipalities have moved to the front. In agriculture, food and beverage production, meanwhile, the best results were achieved in Dobele, Ādaži and Ķekava municipalities. In the remaining manufacturing sectors, the leaders are Olaine, Valka and Valmiera municipalities.
Drivers of growth: from IT to industry
Last year, the intellectual services sectors made the largest contribution to the growth in export income; programming grew more slowly, but it was a successful year for other business services. These sectors are the main driving force behind the development of Riga and its immediate surroundings.
Regions outside Riga are driven by goods production, where metal-related sectors played a positive role last year, recovering after the 2024 downturn. Last year was one of the best for food production, but perhaps because the rise in volumes was driven by capital-intensive projects, the contribution to income growth for regional residents was modest. Results in wood-related sectors can likewise be described as acceptable, though with markedly faster growth in the eastern part of Latvia – Vidzeme and Latgale.
The most interesting structural changes in goods production are happening in engineering. A very dynamic sub-sector is electrical engineering, where a significant share consists of automation systems for production and building management – products that are in particularly high demand amid the world's biggest current investment wave, the build-out of data centres. Meanwhile, optical fibre production has helped Līvāni become one of the most economically developed municipalities in Latvia. The manufacture of other vehicles has, since 2014, been ‘taken over’ by drones. Over that period, drone manufacturers' contribution to employee income has grown fortyfold, reinforcing the technological edge of the Riga and Mārupe economies.
The character of regional economies is changing
Vidzeme's economy has changed the least in recent years – the forest sector's share has continued to grow from an already high base, while the share of food-related sectors has remained large. Glass-fibre production and further processing also hold an important place in the region. Gradual changes have also taken place in Zemgale. Kurzeme, meanwhile, is one of two regions whose economy has been significantly affected by the decline in transit income; the region has compensated for this fairly successfully through the development of industry, particularly engineering and wood processing. In Latgale, the share of income linked to transit, especially rail, was even higher than in Kurzeme, but the starting point for the development of other sectors was lower. As a result, Latgale's share of the Latvian economy has fallen, while the importance of state funding in its external income has grown.
What might 2026 hold for the economies of towns and municipalities?
In the first quarter of the year, exports of intellectual services grew sharply, by 16.6%, signalling that the Riga region's share of the Latvian economy could increase further still. As for the goods-producing sectors that dominate the rest of Latvia's export economy, results at the start of the year were middling in industry overall, while the picture in food and engineering data remained broadly favourable. This points to a possible growth advantage for regions in the western part of Latvia compared with the eastern regions.
Sentiment data, meanwhile, suggest that the situation in industry is more likely to improve over the remaining quarters, while a degree of unease is noticeable in the services export sectors, possibly caused by the impact of artificial intelligence.