Current account deficit down in July
In July 2012 the Latvian current account deficit dropped to 22.2 mil. lats. With the goods and services external trade balance practically unchanged, the improvement of the current account was impacted by the influx of current transfers (primarily EU funds).
The goods exports in July grew at a more rapid rate than imports, and the goods external trade deficit shrank (to 144.9 mil. lats).
The goods external trade deficit is partially compensated by the positive services trade balance. It did however drop slightly month-on-month (to 84.8 mil. lats). The services exports did not change substantially. Yet the services imports grew (in construction, communication services and, slightly, in travel). In exports as well a seasonal rise was observed in construction and travel services. Likewise growth was observed in information and computer services. After rising for several months, however, July saw a drop in the exports of transport services. This drop applies to several types of transportation. The drop in the intensity of goods transport by sea is also evidenced by the characterizing Baltic Dry and Harpex indexes, which started going down in July and have yet to recover. A substantial rise in transport by sea is therefore not expected in the coming months.
The negative balance in the income account diminished slightly in July (to 21.0 mil. lats). A pleasant development was also a substantial rise in the positive balance of current transfers (to 58.8 mil. lats). Both subsidies and financing from other funds were received from the European Union. The total financing from EU funds in July reached 96.2 mil. lats. That contributed to raising the positive balance in the capital account to 47.1 mil. lats.
The financial account in July posted a deficit of 92.1 mil. lats. The inflows of direct investment increased slightly compared to previous months (36.5 mil. lats).
The monthly current account values are subject to fluctuation and a shrinking deficit in one month may not point to a lasting trend. Yet one must note the settled issues regarding inflows from EU funds and the fact that despite a deteriorating external demand, improvements in the competitiveness of Latvian exporters allow them to increase their market shares in the imports of important trading partners.