External trade shrinks in April
In April, the external trade turnover dropped 4.2% month-on-month while the annual increase amounted to 11.9%. Problems in the euro area act to augment the uncertainty regarding the further development of Latvia's partner countries and weaken both business and consumer confidence as well as external demand, which was in part reflected also in the export drop in April.
After rising for several months, both the volumes of goods exports and imports were down and the export and import values in April dropped by 7.4% and 1.8% respectively.
As evidenced by the confidence data of previous months, confidence of Latvian producers has deteriorated substantially both in terms of trends in the expected changes in production volumes and evaluations of export order volumes and competitiveness. It is therefore hardly surprising that the annual growth rate of exports continued to drop as a result of a dwindling demand for exports in the partner markets and disappearing of the base effect. The trend is expected to hold for the coming months as well. A drop was experienced in April in almost all groups of goods, except mechanisms and mechanical equipment which retained their March export indicators. Month-on-month, export value has grown for mineral products, other chemical products as well as electrical devices and electrical equipment. The substantial drop in the exports of transport vehicles and their equipment in April cannot be considered a trend because the month-on-month drop was determined by the impressive increase in ships exports (the orders in this branch are of an irregular nature). Year-on-year, goods exports rose only 5.7% in April. Annually, the most rapid rate of growth in exports were maintained in agricultural products, mechanisms and electrical equipment as well as mineral products. Albeit small yet stable annual growth was observed in the exports of wood pulp and paper as well as plastic products. Changes in the export structure are observed also by country, e.g., the drop in demand for Latvian export goods in Germany is compensated by a rather substantial rise in exports to Poland and Russia where domestic demand remains stable and even grows. These changes testify to the mobility of Latvian exporters and their ability to re-orient the markets for their goods.
The annual rise in goods imports at 16.9% points to a relatively high entrepreneurial activity. It is mainly the growth in the intermediate consumption goods and capital goods that direct the goods imports toward a still cautiously increasing domestic consumption. Year-on-year growth was most rapid in the imports of construction materials, base metal products as well as electrical and mechanical equipment. The month-on-month increase in the imports of transport vehicles in April was determined by the purchase of 100 (Ukrainian produced) closed cargo cars for about 4 million lats by LDz Cargo, a subsidiary of Latvijas Dzelzceļš. LDz Cargo will not limit itself to this purchase and has already announced the purchase of another 200 platforms.
Albeit the evaluation of orders and expected amount of output has improved in May after deteriorating in April, this improvement is mostly on account of domestic demand for the evaluation of export orders remains at the previous month's level. The trends in the economy of the euro area as well as the pessimism of trade partners and consumers does not give rise for hope regarding a rapid improvement in external demand in the near future. Yet the hitherto observed dynamic of the market shares and structure of exports that became more complicated during the crisis as well as the investments in the export-oriented branches allows us to hope that exports will not rapidly lose their significance in the Latvian economic development despite a lower external demand and increasing competition. Thus the development of export-capable branches in the more remote regions of Latvia will be positively impacted by investment in the AXON CABLE enterprise, which is one of the biggest exporters in the Latgale region. As a result of these investments, in April a new plastic casting ship was unveiled in Daugavpils. There is a great demand for the production of this enterprise in the automobile industry. The expansion of the production of goods with a high added value will also be fostered in Latvia by Russian investments in the amount of 7 million lats to establish a SIA Baltic Crystal production unit for the production of sapphire monocrystals (government support for this project was obtained on 22 May). The May decision of the Standard & Poor’s international ratings agency to raise Latvia's credit rating to investment grade gives rise to hope that attracting potential investors to high tech production units will continue. That would be of help in improving the country's export structure. Another reason for optimism is the trade partners outside (Russia, Poland, Lithuania) and inside (Estonia) the euro area which have raised their growth predictions.