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Capital city: Riga

Administrative divisions: 26 counties

Population: 2.3 million

Currency: Latvian lat (LVL)

Languages: Latvian (official) 58.2%, Russian 37.5%, Lithuanian and other 4.3%

Dialling code for int. phone calls: +371

Internet country code: .lv

The Latvian economy continues to weaken as a result of falling real estate prices, a dip in consumer spending and more expensive credit. The outlook remains gloomy with preliminary information for Q3 indicating that the economy may have further contracted, entering into a phase of stagflation expected to last over a year. The scope of the slowdown has also taken the government by surprise and threatens to create a budget deficit this year and next year. The rapid cooling of the economy is expected to bring some improvement in the inflationary outlook and a narrowing of external imbalances driven by weakening domestic demand and consumption growth.

Overall, the economy remains vulnerable to a financial crisis, although we still consider the risk of such a scenario materialising to be relatively low. The current rapid cooling – if it does not turn out to be deeper and prolonged – could indeed result in a reversal of the trend, opening the door for a gradual recovery in the economy.

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