Fitch keeps Latvia's economic rating at 'A-'

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Rating agency Fitch assessed Latvia's current economic outlook at 'A-' on August 5, keeping it the same as the previous one updated in February, and reaffirming a stable outlook.

Fitch mentioned the increased risks with energy independence on Russia as well as the sharply rising inflation and geo-political risks.

The GDP growth is projected to decline, with a 2.9% forecast for 2022 and a 2% forecast for 2023.

"Fitch forecasts GDP growth at 2.9% in 2022, still boosted by the lifting of pandemic restrictions and a release of pent-up demand, although double-digit inflation will bite into household's disposable income and the war in Ukraine will affect confidence. Growth will decline to 2% in 2023, as rising costs of living will still weaken consumption and a dampened external environment, high energy prices and the impact of sanctions on neighbouring Russia will weigh on net exports. Investments will benefit from much higher inflows of EU funds, notwithstanding the impact of surging construction costs. EU fund inflows are expected to peak in 2023-2025 at about 2.5-3.5% of GDP per year," Fitch said.

 Fitch expects inflation to peak around 22% year on year in late summer, bringing the full-year average to 16.8% in 2022. Base effects should bring inflation down to about 7.5% next year. 

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