competitiveness

In February 2013, the external trade turnover of Latvian goods remained almost the same month-on-month, with exports increasing by 1.9% and imports dropping by 1.6%. The annual rise in Latvian exports reached 9.6% in February, which is a good indicator, particularly against the background of the unstable external environment.

In the course of 2011, the dynamic of manufacturing was fluctuating yet with a prominent upward trend determined both by the hitherto persistent external demand and the regained competitiveness of the branch. Toward the end of the year the upward trend gradually began to slow down as a result of weaker demand in external markets and increased uncertainty. It can be expected that in the coming months the situation will be expressly subject to fluctuation and possibly even with a slight downward trend.

This presentation given at Baltic Financial Forum on June 9, 2011 gives an overview of how Latvia regained its competitiveness going through the internal adjustment process. So far indicators confirm that competitiveness has been regained.

Part I. The curse of a small nation

We all have probably heard the question: "If you're so smart why ain't you rich?". On a personal level, this question usually causes moderate discomfort making us reflect on our life goals, ask ourselves: "Yes, indeed, why am I not a millionaire despite my alleged smartness?" and possibly draw some unflattering conclusions. However, we are able to get rid of the feeling of discomfort claiming that we don't want to be rich and prefer an intelectually rich life rather than a prosperous one.

In 2010, the Latvian foreign trade increased substantially, with both the export and import turnover growing (29.5% and 21.0% over the year, respectively).  The renewed foreign demand, price rises in foreign markets, and the increased competitiveness of producers ensured an export growth in nearly all groups of goods to all the main trading partners. The goods import growth, after a drop in 2009, gradually increased starting March and in October began to exceed the annual growth rate of exports.

Compared to October, the output of the manufacturing industry shrunk a little, i.e. by 0.6% (seasonally adjusted data), in November 2010. Such a development was already predicted by the confidence indicators published by the European Commission and the future assessment by businessmen. The industrial confidence indicator dropped 0.3 percentage points month-on-month, with the estimate of export orders dropping substantially, i.e. 3.5 percentage points.

In October 2010 the Latvian trade deficit continued to shrink reaching 80.2 million lats. Both export and import volumes dropped month-on-month while the annual growth rate, albeit lower than before, remained quite high, at  24.9% over the year for exports and 27.9% for imports.

The annual rate of salary reduction keeps going down - to 1.9% in the third quarter -, which is primarily a reflection of the hourly wage adjustment taking place earlier.  A more pronounced annual drop was observed in the public sector (-4.5%), including in stated administration (-4.9%). The annual drop observed in the private sector is substantially smaller, 0.1%, for, to regain competitiveness, businesses have placed an emphasis not only on cutting of costs but also on more effective production and increased productivity.

In August 2010 the Latvian foreign trade continued on a path of fast growth, with both goods export and import turnover increasing by an annual 44.2% and 39.1% respectively.

At present, when the economic growth is gradually reviving in Latvia, reduced deflation can also be observed; now and then, it gives impetus to reoccurring discussions about the lost and God-knows-if-regained competitiveness.