1. Article

The Latvian economy has experienced high and robust growth in a low inflation environment over the last two years. Real GDP grew at 61/2 percent in 2000 and 83/4 percent during the first half of 2001. Growth has been broad based and strongly supported by investment. At the same time, inflation has remained subdued, with the twelve-month inflation rate at 31/2 percent in September 2001. Latvia's vulnerability to external shocks has diminished, as the external current account deficit has declined substantially, notwithstanding the appreciation of the lats vis-à-vis the euro. This was accompanied by strong FDI inflows, which helped finance the external current account deficit to a large extent, thereby keeping external debt indicators in check.