Analytics, EU – Baltic States, Financial Services, Investments, Latvia, Rating

S&P expects Latvia's economic growth to be at 2% this year and over 3% by 2018. The rating agency believes that the growth will slow this year reflecting a relatively weak outlook for exports and private investments. This stems from uncertain prospects for Latvia's trading partners and still-contracting stock of domestic credit.

S&P expects Latvia's economic growth to be at 2% this year and over 3% by 2018. The rating agency believes that the growth will slow this year reflecting a relatively weak outlook for exports and private investments. This stems from uncertain prospects for Latvia's trading partners and still-contracting stock of domestic credit.

The ratings agency said that Latvia's fiscal position remains a ratings strength. The general government deficit amounted to just 1.3% of GDP in 2015. S&P expects deficits to average close to 1% of GDP over the next four years, although some downside risks remain. Specifically, the agency believes that exceptionally low inflation rates pose risks to government revenue performance, while social expenditures and defense spending could be higher than anticipated.

"We anticipate the government will continue to focus on prudent public finances and diversifying the energy supply. We also expect it will pay increasing attention to security and defense given the regional geopolitical environment," the agency said.

The stable outlook reflects the balance between Latvia's potential for better-than-expected fiscal and growth performance over the next two years, and longer term demographic challenges coupled with a number of external vulnerabilities, including risks posed by the large amount of non-resident deposits (NRDs) in the Latvian banking system.

A similar decision on Latvia’s credit rating for long-term liabilities in local and foreign currencies at A- level with a stable outlook was made by Fitch Ratings international ratings agency on May 6.