Foreign trade up in February; investment crucial for export growth

In February 2011 the goods trade turnover in Latvia grew 5.1% month-on-month. The annual growth remained high as a result of the base effect – export grew 35.5% and import 31.0% over a year. The goods trade deficit increased slightly over a month – to 84.5 mil. lats. 

The 3.4% month-on-month goods export growth in February indicates that Latvian exporters, despite growing raw material and energy resource costs, still managed to increase their income owing both to improved competitiveness and the rise in prices in several groups of Latvian export goods. Export volumes grew for pharmaceuticals, ferrous metals and their products, mechanisms and electrical devices, alcoholic and non-alcoholic beverages.  Because of the rapid growth in Latvia's main export partners, the role of these countries continued to grow in Latvia's export structure, i.e. the proportion of exports to Germany, Russia, Sweden and the Baltic countries increased. 

Imports of goods compared to January increased by 6.5%. In Latvian imports, the shipments of vehicles, plastics and plastic products, iron and steel, mechanisms and mechanical devices had the most rapid rise. The still slow recovery of domestic consumption was reflected in the slow growth of consumer goods imports.

The EC published confidence indicators point to a major improvement in March in the expectations of industrial output increases in the next three months; for several consecutive months, evaluations of export order amounts have also been on the rise. Investment activity is expected to experience a gradual rise this year, but some time will pass before it finds its reflection in industrial and export outputs. Important risks that may lessen Latvia's foreign demand are still in place, e.g., the growing global energy resource and food prices as a result of unrest in the Middle East and developments in Japan associated with the earthquake; the fiscal problems and consolidation measures of some European Union member states as well as the capacity of Latvian producers that in many enterprises has reached its maximum. 

Export in the coming months is expected to remain at about its current level, yet investment is needed to increase production volumes: without it Latvian growth prospects may deteriorate. Even though the international rating agencies have increased Latvia's credit rating and future assessment, a better credit rating and a decreased budget deficit are necessary but not sufficient conditions for continued investment inflow. To assure the potential investors that the situation in Latvia is conducive to further development and attracting new investment, the budget consolidation should be carried out in such a way so as not to worsen the competitiveness of the economy, i.e. without raising taxes and effectively carrying out reforms that ensure an improvement of the business environment and balance between workforce demand and supply as well as quantity and quality.