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S&P sovereign credit ratings on Latvia factor in the country's generally effective economic policymaking and eurozone membership, as well as moderate government debt. The agency forecasts that Latvia's economy will contract 0.3% this year, as high inflation and monetary tightening weigh on household consumption and business investment, alongside low external demand from Latvia's main trading partners in the eurozone. According to agency`s view domestic demand will help the Latvian economy to expand 2.0% in 2024, as well as lower energy prices will decelerate inflation from the last year's record high levels.

S&P assumes the Russia-Ukraine war will not escalate into NATO territory, including Latvia, which has been a member of NATO since 2004. NATO has increased its military presence across the Baltics since the war started, and the enhanced cooperation involves efforts to manage broader security concerns, including cyber threats. Additionally, Latvia cut all energy imports from Russia, reducing transition risk and exposure to Russian supply disruption. Still, in agency`s view, a protracted war continues to present indirect fiscal, inflationary and external risks to Latvia's open and competitive economy. S&P expects broad policy continuity, with national security a key medium-term priority for Latvia.

The previous credit rating announcement from S&P Global published on December 6, 2022, when S&P Global affirmed Latvia's credit rating at A+ level and revised outlook from stable to negative.

Full announcement text is available on the S&P Global Ratings official web page: https://www.spglobal.com/en/ (registration necessary)