A drop in Latvian external trade activity in January
In January 2013, the Latvian external trade turnover of goods dropped, with exports down by 4.6% and imports by 4.1% month-on-month. The drop in external trade activity was determined both by seasonal factors and a weaker external demand. The annual growth rate was still positive: year-on-year, exports grew by 11.7% and imports by 3.2%. The external trade balance of Latvian goods thus continued to improve, evidencing the durability of competitiveness of Latvian producers.
In goods exports, a positive annual growth was retained for wood pulp, mineral products, plant-derived products and foodstuffs, mechanisms and electrical equipment whereas a drop was registered for base metals and their products. The upward dynamic of Latvian export market shares and confidence indicators suggest that export growth and the importance of exports in the structure of the economy will be retained in 2013, but the annual growth rate will be uneven and exhibit a tendency to diminish because of the achieved high base and still relatively weak external demand.
The imports of wearing apparel, textile products, wood and wood products as well as base metals and their products grew month-on-month. The goods imports dropped under the impact of seasonal factors (a drop in imports of cereal products and fruit), yet at the same time, a rise in the imports of several consumer goods was observed, which could have been promoted by several factors: rises in employments and salaries, low inflation, the lower income tax that was reduced at the beginning of the year, effectively raising net salaries as well as the discount sales of seasonal goods. A moderate increase is expected in the goods imports in the future. As the export growth rate drops, a slowdown is observed also in the imports of goods, for it is the intermediate consumer goods that account for the largest share in the structure of imports. A contribution to the imports of intermediate consumer goods and capital goods could be made by the realization of several important investment projects launched at the end of 2012, e.g., the development of the infrastructure of Krievu sala and transfer of port operations away from the centre of Riga, reconstruction of the castle of Riga, construction of a sports centre in Salaspils etc. as well as projects planned for 2013, e.g., launch of the reconstruction of the National Art Museum, introduction of a new tramline in Liepāja, construction of AS "Valmieras stikla šķiedra" production unit, construction of "Fortum" biomass cogeneration station in Jelgava, development of a factory of 3D technologies in Ventspils and others. Some of these projects could make a contribution to the growth of imports in the near future and that of exports further along.
Albeit the January data cannot be characterized as a signal for a change in external trade development trends, the fluctuations in the sales of some main groups of export goods in the external markets at the end of 2012 point to a slowdown in the annual growth rates of exports and imports expected in the coming months. The January data likewise indicate that the growth rates in the major branches of manufacturing have been negative month-on-month, including in some of the industrial branches producing export goods (e.g., wood and wood pulp and chemical production).
In 2013 as well the development of Latvian economy will be closely tied to export opportunities, yet the uncertainty regarding the prospects for the development of global economy give rise to caution when projecting growth of Latvian goods exports in 2013. It must be noted, however, that the confidence indicators published by the European Commission (EC) point to an improvement in the evaluation of export order volumes in February and the industry confidence EU indicator has improved not only in Latvia but also in Europe at large, which could imply a gradual improvement in the economic situation.
One of the factors promoting the development of exporting enterprises is foreign direct investment (FDI). Yet at the beginning of this year, the bulk of FDI was made in real estate, trade and services sectors, which do not promote development of production in the long term. In order to promote Latvia’s attractiveness in the sphere of industrial investment, it is therefore necessary to continue carrying out the structural reforms already started (including tax policies, education, public procurement, justice system and energy policies).