Economics, GDP, Good for Business, Latvia, Rating

Latvia's ratings are supported by solid public finances, as well as institutional strengths and a credible policy framework that come with EU and eurozone membership. A lower income level and weaker external finances than higher-rated peers are constraints on the rating, according to Fitch.

Economic growth is benefiting from strong cyclical dynamics, but on an historical basis is slower and more volatile than peers. Real GDP growth was 4.7% in 1H, in line with the 4.6% recorded in 2017. Investment was the fastest growing sector, reflecting a combination of EU funds and private investment. Solid private consumption growth was supported by rising real wages and falling unemployment, the ratings agency points out.

Fitch expects growth to slow to 4.3% in 2018 and 3.4% in 2019, due to slower investment growth, reflecting the pace of inflows of EU funds, and a weakening of growth in major trading partners. Labour market strength will keep household consumption the main engine of growth in 2019. Growth is projected to fall to 2.7% in 2020, slightly below the authorities' view of trend (3%), Fitch points out.