Current account in June supported by positive trends in services sales
In June, as the reinvested profits of foreign direct investment companies increased and the goods trading balance deteriorated as a result of goods purchases transactions, the current account balance was negative (-61.9 mil. lats). Yet in the second quarter and first six months of 2011, by monthly data, the current account balance was positive. In the first six months, it could amount to 1.4% of the forecast GDP. (The publication of Latvia's balance of payments second quarter data is expected on 2 September.)
The operational foreign trade data for June published by the Central Statistical Bureau (CSP) already reflect unpleasant trends in the exports of wood pulp, metals as well as mechanisms and mechanical appliances, as foreign demand shrank, and they point to a drop in the imports of intermediate consumption goods. According to the methodology of the balance of payments, the negative balance of the goods trade is increased by some of the investment goods purchase transactions conducted by Latvian businesses.
The balance of services trade was positive, reaching 78.8 mil. lats in June, which is close to the historically highest level since the Latvian balance of payments data have been available. The imports of services in June did not change substantially over May, thus almost the entire improvement in the services trade balance (21.3 mil. lats over a month) was accounted for by the increase in services exports (primarily in the transport services groups).
The negative balance of the income account was primarily determined by the substantial growth in the reinvested profits of foreign direct investment companies; rather substantial payouts of dividends were recorded in this account in the previous month.
As subsidies for products and other inflows of EU funding dropped, the positive balance of the current transfers account dropped in June to 25.5 mil. lats. The inflow of EU funds increased slightly in the capital account, exceeding 10 mil. lats over a month.
The positive balance of the finance account (43.6 mil. lats) was accounted for both by the net inflow of foreign direct investment (75.4 mil. lats, which is the best monthly indicator over a period of the last year-and-a-half), and the increase in portfolio investment. The credit institutions in June continued to pay on their short-term liabilities (interbank short-term deposits), but increased their long-term liabilities (interbank long-term deposits with Latvian commercial banks).
The services trade data do not point to any negative impact on transport and other services that might be caused by the economic problems experienced by Belarus. Yet the development of services trade over the next few months should be evaluated with caution, primarily because of the confidence indicators in the goods market.
Any possibilities of attracting investment will no doubt depend on whether Latvia, by demonstrating clear and stable economic policies, will be able to make use of its current opportunities and attract the attention of those investors that are currently waiting for