A 120.1 million euro deficit in the current account of Latvia's balance of payments in the first quarter of 2014

Latvia's balance of payments data for the first quarter of 2014 have been published based on the latest balance of payments methodologies of the IMF. Due to the above methodology changes, some items are not directly comparable with the previous quarterly data.

A 120.1 million euro deficit built up in the current account of Latvia's balance of payments in the first quarter of 2014, representing 2.2% of the forecast GDP (see Chart). The deficit was determined primarily by the growing foreign trade deficit in goods.

Chart. Main components of the current account (% of GDP)

* calculations use Latvijas Banka GDP forecast and balance of payments data based on the new IMF methodology

Foreign trade deficit in goods and services expanded to 116.6 million euro or 2.1% of the forecast GDP. The reduction in the first-quarter exports of goods in comparison with the previous quarter could be explained by seasonal effects. In annual terms, however, exports increased.

Exports of services decreased in comparison with the previous quarter. The decrease was primarily attributable to seasonality affecting areas like travel services as well as construction services rendered. Information and computer services exports also posted a decline. At the same time, imports of goods and services also shrank, mostly on account of lower imports of travel, transportation and construction services due to seasonal reasons.

Despite the decline reported in exports for the first quarter of 2014, Latvia's global export market shares are growing suggesting that the competitiveness of Latvian exporting businesses is sustainable.

The surplus of the primary income account totalled 37.3 million euro or 0.7% of GDP in the first quarter. The secondary income account, however, ran a deficit of 40.8 million euro or 0.8% of the forecast GDP.

As to the capital and financial account of the balance of payments, the capital account recorded a surplus of 126.3 million euro or 2.3% of the forecast GDP in the first quarter, whereas the financial account ran a deficit of 263.2 million euro or 4.9% of the forecast GDP. Foreign direct investment grew by 21.7 million euro or 0.4% of the forecast GDP.

The first-quarter developments in the financial account were also reflecting the Latvian government bonds launched in the international markets in the amount of 1 billion euro in January and April of this year. The January issue enabled the refinancing of the international loan at lower interest rates in March. The April issue, in turn, will provide lower-interest-rate refinancing for the European Commission loan in the amount of 1.2 billion euro required next year. Successful launching of euro-denominated bonds and availability of lower-interest-rate borrowing from international financial markets provide an opportunity to spend more on economic needs and support further economic development.

The international rating agency Standard & Poor's upgraded Latvia's credit rating on 30 May and this can be expected to strengthen the attractiveness of the economy in the eyes of investors and their confidence in the economy, thereby supporting sustainable investment inflows to Latvia.