Latvia's gross domestic product plummeted 10.5 per cent in the fourth quarter last year compared with the same period in 2007, the national statistics agency said on Monday. The result maintains Latvia's position as the worst performing economy in the 27-member European Union. The Baltic nation already had the bloc's worst economy in the third quarter, when GDP fell 4.6 per cent year-on-year.
Latvia's statistics agency said the fourth-quarter result was an estimate and could be revised.
The country is in a slump after years as the EU's fastest growing economy. Some analysts predict that the economy could contract by as much as 10 per cent this year.
The Baltic country's economic free fall accelerated in the last three months amid a steep fall in manufacturing, retail and the hotel and restaurant sectors, the agency said in its estimate. On the brighter side, annual consumer price growth in Latvia slid to 9.8 per cent in January, despite a sharp increase in monthly inflation, the agency said.
Latvia continues to boast the highest annual inflation in the 27-member European Union _ which peaked at 17.9 per cent in May 2008 _ sparked by years of stellar economic growth.
But in June prices began falling as the economy slowed dramatically. Economists fear that, over the long run, Latvia may soon enter a period of deflation.
In the last two months of 2008, prices fell on a monthly basis, though they jumped 2.2 in January due to a sharp rise in taxes that went into force at the beginning of the year, the agency said. The center-right government introduced the taxes in an effort to boost revenues, which have fallen sharply as a result of the economic crisis.
Latvia's economy started to crack last year as the property bubble burst, and it went into recession _ defined as two consecutive quarter of negative growth _ in the third quarter. In November the country's second largest bank by assets, Parex Bank, became insolvent and had to be nationalized, while the national currency, the lat, came under extreme pressure. A month later, the government signed an agreement with major international lenders, including the International Monetary Fund and Scandinavian government, for a bailout package worth euro7.5 billion ($9.6 billion).
The economic turmoil has sparked social and political upheaval in the former Soviet republic of 2.3 million people. In January riots broke out in Riga's historic old town after a peaceful demonstration calling for the government's resignation. President Valdis Zatlers has threatened to dissolve parliament if lawmakers don't meet a series of demands _ including an amendment to the constitution giving voters the right to call for new elections _ by the end of March.