LATVIA

Geographically, it is the middle one of the three Baltic republics, which were a part of the former Soviet Union; next to the Baltic Sea, borders with Estonia, Russia, Belarus and Lithuania Total area: 64,589 sq km (slightly larger than West Virginia) Population:  2.26 million Government type: Parliamentary democracy Administrative division: 96 counties (called „novads“) and 9 republic cities; the respective administratively territorial reform is to be finished in H1 2009 Capital + other major cities: Riga (715,978) + Daugavpils (105,958), Liepaja (85,050) Currency: Latvian lat (LVL) Languages: Latvian (official) 58.2%, Russian 37.5%, Lithuanian and other 4.3% Ethnicity: Latvian 59.2%, Russian 28.0%, Belarusian 3.7%, Polish 2.4%, Lithuanian 1.3%, other 3% Religion: Lutheran, Roman Catholic, Russian Orthodox President: (Mr.) Valdis Zatlers (since 8 July 2007) Prime Minister: (Mr.) Valdis Dombrovskis (since 12 March 2009) Date of EU accession: 1 May 2004

MACROECONOMIC OVERVIEW

Latvia has undergone a rapid transformation toward a free market economy over the past decade. For centuries, Latvia had been mainly an agricultural country with fishing, forestry, and seafaring playing a key role in its economy.

Latvia's GDP decreased dramatically in late 2008 and especially in 2009, after several years of robust economic growth which was one of the highest among the new EU members. The situation resulted from a combination of factors including a real estate bubble burst in late 2007, decreasing domestic and foreign demand across various sectors and relatively indebted private sector (a result of large numbers of mortgages and consumer loans issued during the growth period of 2005 to 2007).

Key industries with positive future outlook include ship-building (largely due to exports of ship hulls from Riga Shipyard to Norway), production of ready-made wood houses, food production and IT services.

Selected economic indicators, Latvia, 2005 - 2011

Source: Eurostat, Central Statistics Bureau of Latvia; * 2011 - forecast

STRUCTURE OF ECONOMY - KEY SECTORS

In the services sector, retail and wholesale were the fastest growing segments between 2004 and 2005 with a 17.4% increase, while construction and real estate sales took over the leading role in 2005-2007, accompanied by intensive loan and mortgage campaigns by banks and increasing private consumption.

The trend proved unsustainable, and in 2008, most industries experienced negative growth, which is enforced by the downturn across markets worldwide, increasing interest rates and scarce availability of new loans. After several years of growth the construction segment was down by 3.7% in 2008, even despite the industry’s hope to re-focus on road construction; retail volumes are decreasing, and imports/wholesale of consumer electronics are falling as private spending is reduced.