RIGA (AFP) -- The retail sector in Latvia has posted the strongest annual growth in the 27-member European Union, and analysts in the Baltic state predict the boom will continue as wages keep rising and credit is handed out liberally.

Latvia's retail sector expanded by 27.7 percent in the 12 months to March, or more than 10 times the average for the same period in the 13-member eurozone, the EU statistics agency Eurostat said last week.

The buoyancy in the retail sector is linked to a steady rise in incomes and persistently high inflation, Raita Karnite, director of the Institute of Economics at the Latvian Academy of Sciences, told AFP.

"People here don't think now is a convenient time to save. There is no use for savings, and there is a genuine need for consumer durables such as cars, flats and the like. Demand is high for modern consumer goods, which are available here now," Karnite said.

Latvia's economy has been growing at breakneck speed as it catches up to older members of the EU, which it joined in 2004.

Last year, gross domestic product grew by 11.9 percent, and this year, it is forecast to expand by 9.0 percent.

Retail trade accounts for around 21 percent of GDP.

"Another reason for the spending boom is that inflation is so high," driving consumers to spend their money today instead of tomorrow, when prices are likely to be higher, Karnite said.

Inflation in March ran at 8.5 percent over 12 months, fueled mainly by higher clothing and footwear prices after the end of the winter sales season.

Aggressive campaigns by banks to promote consumer loans have also driven the retail boom, by making money easily available to consumers.

"Consumer credit is being promoted by banks with very intrusive, pushy advertising," Karnite said, although she speculated that bank-issued consumer credit "will get more difficult to get a hold of" as a government plan to slash inflation takes effect.

The government in March unveiled an ambitious plan to cut inflation to 2.0-3.0 percent by 2010.

The plan would fight inflation by tamping down consumption. It would do that by placing restrictions on the issuance of personal loans and mortgages, by taxing some real estate deals and by limiting public sector salary increases.

The plan was announced after ratings agency Standard and Poor's revised downward its outlook on Latvia from 'stable' to 'negative' on concern that the Baltic state's booming economy is overheating and might be set for a rough landing.

"The Latvian economy is showing clear signs of overheating. Without the introduction of prompt policy measures to curb surging domestic demand, there is an escalated risk of a hard landing, which would have adverse effects on the long-term growth potential of the Latvian economy," Standard and Poor's credit analyst Eileen Zhang said in February.

Last month, Fitch Ratings followed Standard and Poor's lead, revising its outlook for Latvia to negative amid fears of overheating.

Some retailers have predicted the boom in their sector will continue despite the doom-sayers and the government plan.

"I suspect that the growth in retail will continue over the next few years, because the consumption of both food and other goods is growing continuously," Kristers Akerbergs, chairman of the board of the Rimi Latvia retail chain, told AFP.

Rimi Latvia plans to invest 15 million lats (21.3 million euros, 29 million dollars) in 2007 to expand its business, which saw sales grow by 29 percent year-on-year in the first quarter, to reach 121.7 million euros.

Karnite also predicted the retail boom will continue, but not for as long as Akerbergs foresaw.

"It will continue through this year" before "mellowing out a bit as the government's fight against inflation takes hold... and consumer credit gets more difficult to get hold of," she said.