Average current account deficit of three quarters is 1.4% of predicted GDP

In the Latvian current account a deficit of 127.1 mil. lats (3% of predicted gross domestic product - GDP) formed  in the third quarter of 2013.  Even though such a deficit may seem substantial, it is important to observe the trends over a longer period of time. The average current account deficit of the first three quarters of this year was only 1.4% of the predicted GDP.

Illustration. Main components of the current account, % of GDP

*GDP prediction of the Bank of Latvia was used in the calculation.

The external trade deficit of goods and services grew to 122.2 mil. lats (2.9% of predicted GDP) in the third quarter. The negative balance of goods trade increased because the export of goods shrank at a faster rate than imports, which was fostered by resumed investment activities. The annual rate of services increase not only managed to stay in the pluses but even grow to 6.5%. Compared to the previous year, growth was observed for a wide range of services: the exports of construction, insurance, financial, information and computer services as well as individual, cultural and recreational services have grown.

The third quarter growth in exports of travel services seems interesting. Even though it may seem that it has resulted under the "impact of summer" when tourism is on the rise, even year-on-year, the travel export has increased by over 15%. Business travel is on the rise from Russia, Belarus and Uzbekistan. Personal travel from Ireland, Great Britain and Germany have also increased. Survey estimates indicate that Latvia is visited over the course of the year by many Latvians living abroad, so it is possible that the statistics on personal travel were fostered by these people who visited Latvia for a variety of reasons (Song and Dance Festival, healthcare or simply family visits etc.).

Transportation services exports in the third quarter shrank because of a drop in transportation by sea and railway. At the end of the year, the volume of transportation by road may be affected by the amendments Russia has made to customs regulations, which will make cargo services to this country more cumbersome. It must be noted, however, that albeit cargo services to Russia make up almost one fifth of all Latvian cargo services by road, they amount to only about 5% of total services exports and thus growth in other service branches may lessen the negative impact of these events.  

195.2 mil. lats was received from European Union funds in the third quarter, the bulk of them were payments designated as investment. In the financial account of the balance of payments, a surplus of 60.8 mil. lats (1.4% of predicted GDP) formed in this quarter. Foreign direct investment in Latvia grew by 47.2 mil. lats (1.1% of predicted GDP).

In view of the trends in external trade, income and current transfer flows, no radical change is expected at the end of the year and therefore, in 2013 overall, the current account deficit will be small.