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Fitch Sees Faster Latvia GDP, Narrower Budget Gap in 2012

Fitch Ratings improved its outlook for Latvia’s 2012 economic growth and budget deficit, saying the Baltic nation continues “to outperform expectations.”

Gross domestic product will probably rise 3.5 percent this year, compared with a previous 2.5 percent estimate, Fitch said today in a statement from London. The budget deficit may narrow to 2 percent of GDP, compared with an earlier 2.5 percent projection, it said.

Latvia is rebounding from the world’s deepest recession in 2008-2009, which erased almost a quarter of economic output after a property bubble bust and credit inflows dried up, prompting an International Monetary Fund bailout. The economy expanded 5 percent from a year earlier in the second quarter, the statistics office reported today, the quickest pace in the European Union.

“The risks to creditworthiness have diminished since our review in late 2011,” Fitch said. “A continuation of positive fiscal and macroeconomic trends could lead to a positive rating action.”

Fitch rates Latvia BBB-, the lowest investment grade, with a stable outlook. While the country’s banking industry is solvent and profitable, the share of non-resident deposits may pose a risk, Fitch said.

“The high proportion of non-resident deposits in the banking system remain at risk of capital flight should risk aversion increase, while continuing deleveraging by Nordic parent banks restrict credit supply and international reserves,” the ratings company said.

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