August data are ruthless - Latvian exports shrinking

In August 2015, the Latvian goods external trade turnover dropped by 7.0% month-on-month, with exports and imports declining by, respectively, 7.8% and 6.4% month-on-month.

Year-on-year, the export value of goods has dropped by 3.7%.  Exports are still under the negative impact of several factors: sanctions imposed by Russia and the drop in the value of the rouble; the geopolitical situation; worsening of the trade conditions along with the global downslide of prices, increasing competition and the continuing weak demand in external markets.

In the first eight months of this year, the exports of Latvian goods even retained a slight growth of 1.8% year-on-year, posting a rise in the export of optical and medical equipment, chemical industry products, including pharmaceuticals, timber products and furniture, plastics, paper products, construction materials, textiles, mechanisms and electrical equipment. The reduced demand in the Russian market has been compensated by increased exports to European countries (the United Kingdom, Denmark, the Netherlands, Estonia, the Czech Republic etc.), the USA and Asia (Algeria, United Arab Emirates, Hong Kong, Saudi Arabia, Turkmenistan, Azerbaijan, Japan etc.).

Even though in all the most important export branches, except the food and agriculture industries, growth more or less continued, exports reflect some stagnation and pessimism. European Commission data indicate that the evaluation of total orders and export orders is deteriorating and so is the evaluation of competitiveness both within the European Union (EU) and domestically, which points to the relatively weak demand and increased competition. The hitherto fast growth of Latvian export market shares experienced in the last two years has practically stopped. Goods exports to European countries (the West) is developing well, whereas exports to the East are limited because of the unpredictable fluctuations of exchange rates. Even though the exports of timber products are still in the plus range, in this branch as well the export growth rate has slowed substantially.

After a two-year-long interruption, "KVV Liepājas metalurgs" has resumed operating, resulting in a positive effect in the manufacturing of metal products and thus in the total manufacturing data. However, the exports of metal products are not growing and no export growth in this industry is likely in the medium term because the keen competition in the external markets and the lack of optimism in the construction markets of the largest importers act to prevent any significant increase in production and thus exports in both wood and metal industries.

The food and agriculture industry is suffering from the Russian sanctions most directly. The industry cannot quickly compensate the drop in the Russian market with increased sales in other markets, because time consuming procedures related to various inspections, permits, certificates etc. are necessary to enter new markets in the food export industry. Yet even here there are several enterprises that are expecting increased turnover and export this year, irrespective of the contracted exports to Russia. For instance, the candy producer AS "Laima", which is exporting to over thirty-seven countries, including Canada, China, Israel, the United Kingdom, Ireland, Russia, Belarus, and Azerbaijan, this year doubled its exports to the United States by shifting emphasis from tax-free points of sales to supermarkets as well as by beginning the manufacturing of private label products for American clients and using special market channels for its production, i.e., military and marine bases. The producer of crisps "Latfood", which exports to 14 countries, with Russia and Belarus still its largest importers, this year began exporting to Sweden, Finland, Denmark, South Korea and Georgia. The potato starch manufacturer "Aloja-Starkelsen" began exporting to such exotic countries as South Korea and Thailand.

The geopolitical situation and the slow economic growth in the EU at large have created obstacles to investment and export growth, therefore there is still a need for acquiring new markets and increased competitiveness.