Latvia’s economy contracted at an annual rate of 10.5 per cent in the fourth quarter of last year – a much larger decline than many economists had expected – raising fears that the country may be unable to stick to the conditions attached to its recent International Monetary Fund rescue package.

With economists predicting a further drop in gross domestic product of up to 10 per cent in 2009, the country faces the steepest plunge into recession of any European Union member state and the sharpest economic contraction on the continent since the aftermath of the collapse of the Soviet Union in the early 1990s.