Summary: International evidence from countries that previously attained a level of relative income similar to Latvia shows that subsequent growth of well over 4 percent per annum is feasible, but not guaranteed. Over one-third of countries reaching a similar stage of development as Latvia in 2014 outperformed the United States’ per capita real GDP growth by more than 2 percent. A decomposition of growth drivers shows that Latvia faces particular challenges from adverse demographic trends; to counter these, efforts will be needed to increase the employment ratio by reducing still high structural unemployment. On the other hand, Latvia has much scope for improving its convergence prospects by generating higher investment ratios, which are well below the levels achieved by good performers in the sample.

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