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Latvia gets ratings upgrade 11.11.2012

Latvia’s economy grew more than 5 per cent in the third quarter, confirming a recovery in the euro-hopeful Baltic state from a deep crisis, data showed on Friday, when Standard & Poor’s also upgraded its credit rating.

The finance minister said Latvia was likely the fastest growing country in the 27-nation European Union in the quarter, but economists warned a slowdown would come eventually, in the wake of a slowdown in regional powerhouse Sweden.

The small nation suffered the most among its European Union peers from the global crisis after the collapse of Lehman Brothers and its gross domestic product fell 18 per cent in one year in 2009.

After years of austerity, it has experienced an export-led recovery which has helped it claw back some of the lost output and is forging ahead with plans to adopt the euro in 2014.

The statistics office said a boost from manufacturing, trade and construction led the economy to post 5.3 per cent growth in the third quarter, compared to the same period last year.

“The economic achievement of the third quarter was excellent and the economy is showing continued resilience against the negative trends in southern Europe,” Finance Minister Andris Vilks said in a statement.

The statistics office said economic growth brought in 7 per cent more tax receipts, boosting the state treasury, which is expected soon to tap international debt markets.

Vilks said the growth rate was likely to be the fastest in the whole 27-nation European Union in the quarter.

The growth was higher than the 5 per cent of the second quarter and than the 4.4 per cent forecast in a Reuters survey.

Still, tens of thousands of Latvians have left the country to seek a better life in richer parts of Europe and the jobless rate is at 16 per cent, down from 21 per cent at its height.

Swedbank chief economist Martins Kazaks warned his countrymen not to celebrate too soon.

“Latvia’s economic growth is pleasing, but moderation in spending and caution needs to be kept. Growth next year will definitely be slower than this year,” he wrote in a note.

S&P raised Latvia to BBB/A-2 from BBB-/A-3, making it more attractive to investors, citing economic and fiscal improvements.

“The upgrade reflects our expectation that Latvia’s net general government debt will decline on the back of its strong economic recovery and rapidly improving fiscal balances, and also our view that the economy will come to rely less on external debt financing,” S&P said in a statement.

S&P put a positive outlook on the ratings, meaning it could upgrade Latvia in the next two years.

That would come “if its fiscal and inflationary performance remains consistent with euro adoption criteria, leading to Latvia becoming a member of the Eurozone,” the agency said.

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