Latvia is in recession after several years of boom
Latvia's economy has shrunk at the fastest rate since the early 1990s, when it split from the Soviet Union, the statistics office has estimated.
Gross domestic product (GDP) fell 10.5% in the last quarter of 2008 from the same period a year earlier.
The Latvian economy had been booming for several years, driven by consumer demand, but was hit hard last year amid the global financial crisis.
Economists believe that Latvia's GDP could fall as much as 10% this year.
"We are dropping in the hole faster than we expected," said Andris Vilks, chief economist at banking group SEB.
"I would say that we will see double-digit [GDP] decreases for the first and second quarter."
Manufacturing output plummeted 11.3% in the quarter in comparison with a year ago, while the retail trade sector fell 15.6% and hotel and restaurant businesses plunged 24.8%.
Separately, Latvia's labour agency reported a rise in unemployment to 8.3% in January from 7% in December.
At the end of December, the International Monetary Fund approved a 1.68bn euro ($2.35bn; £1.59bn) rescue loan for Latvia.
It is part of a 7.5bn-euro package that includes funding from the European Union, the World Bank and various countries.