Latvia is the worst-performing economy in the Baltic states and the only one continuing to decline. Source: Central Statistical Bureau of Latvia

RIGA — The dreadful economic news for Latvia continued Wednesday, with economic output declining by nearly one-fifth in the third quarter and a major ratings agency announcing that the country could be downgraded yet again.

Forget the initial assessments — Latvia’s economy may not have bottomed out after all. The Central Statistical Bureau of Latvia said gross domestic product fell 19 percent from July to September compared to the same period in 2008, 0.6 percent more than initially estimated.

Over the first nine months of the year the economy has declined 18.6 percent year-on-year, the agency said. Though the data was in line with analysts’ forecasts, the numbers are frightening testimony to the extent of Latvia’s recession, which is the worst in the nation’s history.

On an annual basis Latvia’s economy shrank 18.2 percent in the second quarter and 18 percent in the first quarter.

Fitch Ratings, a major international credit risk assessor, suggested Wednesday that Latvia, along with Estonia and Lithuania, could see its rating downgraded once again.

“The Baltic countries’ ratings are under pressure from the extent of the recession, the risk of political fallout over multi-year fiscal austerity measures, the pace of the deterioration of bank asset quality and the risk of currency devaluation in Latvia,” the agency said.

Fitch said Latvia and Lithuania are at greater risk of a downgrade than Estonia.

Commenting on the overall economy, Zigurds Vaikulis, head analyst at Parex Asset Management, said that Latvia’s economy was unlikely to fall as steep in the fourth quarter as it did in the third.

“If we’re talking about the fourth quarter, then for the annual decline we’ll probably see a number a bit lower. According to our calculations it won’t be 19 percent like in the third quarter but 13-15 percent,” Vaikulis was quoted as saying by the Mixnews portal.

Most economists agree that Latvia will hit the bottom sometime in the first three or four months in 2010 – unemployment, for instance, is continuing to rise and has already passed the 20 percent threshold according to EU data – after which there will be a slow ascent to positive output growth, particularly on a quarterly basis.

Still, GDP is expected to decline by about 4 percent next year, and perhaps in 2011 the economy will resume growth after three years of contraction. The Bank of Latvia stated last week in a report that Latvia’s economy would likely shed 37 percent of its total value as a result of the recession, which is the steepest in the European Union.

The Central Statistical Bureau of Latvia said that in the third quarter Lithuania’s economy fell by 14.2 percent in the third quarter, and Estonia’s 15.6 percent. Together the three Baltic states boast the worst economies in the EU.