Feb 9, 2010, 11:52 GMT
Riga - The economy in the Baltic state Latvia, which has been hardest hit of all 27 EU member states by the global economic crisis, contracted by nearly 18 per cent in the fourth quarter of 2009, data released on Tuesday showed.
'Compared to the same period of 2008, gross domestic product (GDP) value has decreased by 17.7 per cent,' the national statistics office said.
The fall was led by a startling 30-per-cent drop in the retail sector.
However, despite the scale of the fall, the GDP actually grew by 2.4 per cent compared to the third-quarter figures, suggesting that Latvia's deep recession may have bottomed out.
Accompanying figures on Latvia's international trade showed that the recession has had a devastating effect on the economy over the course of 2009.
Foreign trade turnover for the entire year totalled ay 8.2 billion lats (16 billion dollars), a drop of 31 per cent compared to 2008.
The coalition government of Prime Minister Valdis Dombrovskis has initiated a range of painful reforms including wage reductions, a pensions freeze and big public spending cuts as it battles to rebalance the economy that was overheated by a decade-long boom.
The country now has the highest number of jobless in the EU, with 23 per cent, according to Eurostat figures.
Latvia's economic recovery plan is based on conditions attached to a 7.5-billion-euro (10.3-billion-dollar) loan from international institutions including the International Monetary Fund, European Union and World Bank.
The Latvian economy has been in decline since late 2007 after its overheated economy imploded and the government was forced to rescue the country's second-largest bank, Parex in 2007.
Figures released Monday showed that Latvia's rate of inflation fell by 3.1 per cent in January, raising hopes that Latvia may be able to adopt the euro in 2014.
While some analysts believe the target is overly optimistic given the size of Latvia's economic problems, others believe the possible accession of neighbouring Estonia to the eurozone in 2011 may smooth the way for Latvia to ditch the lat in favour of the euro.
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