Analytics, Banks, Financial Services, Latvia

She said that this year has started out with a heavy blow on the reputation of Latvia's financial sector, still, the impact on the economy and the state budget seems to be small. Possibly, Swedbank's gross domestic product (GDP) growth forecast for 2018 should be lowered from 4.2% to slightly below 4 %, but it is still a steep growth, she said.

"Drop of non-resident deposits will negatively affect the contribution of the financial and insurance sector to the economic growth, possibly some construction projects will not be carried out, and the number of job seekers will grow, which, on the other hand, will soon be absorbed by the warming labor market. The impact on investor sentiment and new foreign investments in Latvia will depend on how successfully Latvia will solve the reputation crisis," the economist said.

She also noted that the largest credit rating agencies have said that they will not downgrade Latvia' s rating, thus costs of refinancing the government debt should not grow. At present it seems that the economy is strong enough and will be able to compensate for the drop in the financial sector.