Due to several factors, Latvian external trade activity down in January

In January 2014, the value of Latvian external trade turnover dropped 7.4% month-on-month because of both seasonal factors and weak external demand and slower economic growth in Latvia's important trade partners. Month-on-month, exports of goods dropped by 8.3% and imports by 6.8%. The rate of annual growth in goods trading was also negative: exports dropped by 2.4% and imports by 5.8%.

Dropping external trade activity is characteristic of January, and the first month of this year was no exception. Compared to December, goods exports suffered a negative impact mostly from a substantial drop in the exports of products of the food industry, which was primarily the result of a drop in the exports of alcoholic and non-alcoholic beverages to Russia, which has a seasonal character, as well as a substantial drop in the exports of pharmaceuticals. The exports of goods still enjoyed a positive support from a rise in the exports of wood, including plywood and sheets of veneer. Compared to December, the proportion of construction materials and textiles and their products also increase in the goods exports.

Despite the overall negative goods exports growth, January cannot be written off as a month of poor performance, since annual growth remained positive in many groups of export goods, including food products, plant derived products, wood, construction materials and plastic and textile products. A negative impact on the annual growth rate still came from the "Liepājas Metalurgs" effect, since January 2013 was the last month of full capacity output of the enterprise.

Goods imports dropped under the impact of seasonal factors (a drop in the imports of grains, fruit, and construction materials), but at the same time, a rise in several kinds of consumer goods was observed. Compared to December, the imports of wearing apparel, footwear, textile products, wood, mineral products, ferrous metal and its products were on the rise. The imports of consumer goods were fostered by discounts on seasonal goods, the warm winter with smaller heating bills, and a much more intensive spending of lats as a result of euro introduction.  

If, according to previous projections, export growth was to increase in 2014, the beginning of the year has brought several negative "surprises" to external trade. A favourable scenario of external trade development is mostly endangered by the developments in Ukraine and Russia, which create a new and unpredictable external environment, which, with a weaker demand, will have an impact both on Latvian exports and investments. The bad news is that, under the impact of the events in Ukraine and Russia, it is the very export industries that had begun to register stable growth, e.g., the producers of food products, including fish, and textile industry. Metal processing and pharmaceutical productions can also expect a negative impact.

Uncertainty in the external environment is created also by pronounced differences in world's growth rates. The growth in the US, British and German economies, which is accelerating, will have a positive influence on exports, whereas the sluggish recovery of several European countries, as well as the uneven growth in the Scandinavian and Baltic countries do not raise expectations of a substantial expansion of the goods market in these regions. Another negative factor affecting export growth could be the poor investment activity last year.

The slow recovery in the euro area and the events in Ukraine have already found their reflection in the confidence indicators published by the European Commission, which point to deterioration in February in the evaluation by Latvian businesses of the prospective sales of  their production and of the size of export orders. In the first quarter, businesses likewise expect deterioration both in export orders and in competitiveness in the European Union (EU) and outside of it. Entrepreneurs express greater caution also in their projections regarding possible business growth in 2014, and the number of those who are planning to increase their turnover and expand their operations in the existing markets and claiming new ones.

Even though Latvian exports are diversified by sector and country, export growth this year will be determined not only by the growth in external demand and competitiveness of Latvian entrepreneurs but also investments aimed at increasing export capacity.