RIGA, June 17 (LETA) - Smiltene and Aluksne showed the fastest economic growth among Latvia's municipalities last year thanks to a successful attraction of investment and previous work done to increase production capacities, Peteris Strautins, economist at Luminor Bank, said while presenting an economic survey of Latvia's municipalities on Tuesday.

Latvia's overall economic growth last year was slow against the backdrop of the previous decade's performance, he said. Sectors that can usually be counted on as reliable drivers of growth in Latvia were in crisis, such as business services exports, as well as metalworking and engineering.

According to Strautins, regional examples show that even when market conditions are unfavorable, proactive action and a targeted development policy can mitigate the negative impact and enable growth.

The economies of Latvia's cities and municipalities are different, so their relative performance is influenced by the dynamics of the leading sectors' sales markets. Strautins said that there are municipalities that have been showing growth despite overall slowing of the national economy.

Smiltene municipality had the strongest growth last year - despite its heavy dependence on the forest sector, which had a mediocre year, the municipality showed strong growth. Aluksne, with its strongly "foresty" economy, also grew at twice the average rate. Strautins explained that both municipalities were successful in attracting investment last year and continued to reap the fruits of the previous years' work on increasing production capacity and developing new products.

Strautins also named the municipalities where exporting companied had achieved the highest per capita wage growth over the past decade. Smiltene was the top ranking municipality in the forest sector (forestry and wood processing), followed by Sigulda and Ventspils. Livani ranked first in engineering (metalworking, mechanical engineering and electronics), Marupe came second and Liepaja third. Adazi was leader in food and beverages production, followed by Dobele and Rezekne.

Strautins explained that the relative performance of sub-sectors or product groups can also be seen in the survey data. For plywood and veneer producers, the past two years have been very different from the wood industry as a whole, which has helped Jekabpils to stand out with performance in this sub-sector. In contrast, the past year was not at all successful for the production of solid wood products in general, as well as of joinery products and house modules in particular, the industry that has been growing steadily over the past decade. This has had a negative impact on the performance of enterprises in Valmiera and Limbazi.

Metal-related industries also had a rather weak year in 2024, although Liepaja, which has specialized in these areas, managed to slightly surpass the national average, compensating the weak demand with new production facilities, as the city continues to attract new investors. The impact of an engineering crisis, meanwhile, is unpleasantly evident in the performance results of Ventspils and Daugavpils where this impact is exacerbated by a weakness of the transport sector.

Strautins said that the food sector performed well last year, helping Bauska and Adazi municipalities to show solid performance. There, too, the local economy was significantly boosted by capacity expansion and the construction of new production plants.

Among Latvia's regions, Zemgale had the most successful year. According to Strautins, this was thanks to the successful performance of timber companies operating in eastern Zemgale (Jekabpils and Aizkraukle), as well as the growth of the food industry.

Riga was the second best region. As the economist explained, there are two labor markets in Latvia - Riga and the rest of the country, and in Riga, the labor market forced IT companies to raise pay swiftly despite the complicated situation in export markets.

The capital city's economy was hampered by the fact that so-called high value-added industries fared worse last year than those based on the processing of natural resources. Kurzeme and Vidzeme performed virtually identically, but Latgale's export economy faltered, as the rail transport and engineering sectors, which were hit by the crisis last year, play a major role in the region's economy.

Strautins said that the previous decade in the Latvian economy can be divided into two distinctly different five-year periods. Between 2014 and 2019, the regional economy grew rapidly - during this period, many companies were founded, new products were developed, the regional economies diversified rapidly, the proportions of previously under-represented sectors increased, and changes within sectors took place. For example, the production of higher value added solid wood products grew faster than sawmills.

This growth continued also beyond 2019, albeit at a more moderate pace because of "objective" setbacks and insufficiently active development policy on the national and local level.

The economist also said that the map of the locations of the most important industries for the regional economies shows how few and how slowly industries other than the processing of local natural resources are moving away from their original locations. The industries are still almost entirely concentrated within a few kilometers of existing or former railway lines, even though most of these enterprises no longer use the railways. This also shows the challenge of diversifying regional economies.