Fitch raises Latvia's GDP forecast

Influential ratings agency Fitch on October 27 maintained a generally positive position on Latvia's economic prospects, even raising its GDP growth expectation by a considerable margin.

"Fitch Ratings has affirmed Latvia's Long-term Foreign- and Local-Currency Issuer Default Ratings (IDRs) at 'A-', with Stable Outlooks," the agency said in a release from its London bureau. 

"Latvia is currently benefiting from a strong cyclical upswing, which will support investment and employment growth in the near term. Unfavourable demographics and structural bottlenecks weigh on medium-term growth potential. Latvia's lower income level and weaker external finances than higher-rated peers remain constraints on the rating," it said in a summary. 

Most notably Fitch has revised up its real GDP forecasts, projecting growth of 4.1% in 2017, and average growth of 3.5% in 2018-2019, on the back of what it called "stronger-than-expected performance so far this year." 

Six months ago the agency estimated average growth of 2.8% across the three-year forecast period.

"Strong domestic demand from household consumption and a pick-up in investment activity are expected to be key drivers of growth," it said.

For 2017, Fitch projects Latvia's fiscal deficit (0.5% of GDP) to stay below the median deficit (1.5% of GDP) of its 'A' category peers, but the fiscal deficit is expected to widen to 1.3% of GDP in 2018. 

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