Goods and services exports in November continued to exceed imports

Surplus in the current account amounted to 131.9 mil. lats in November, and the exports of goods and services exceeded imports by 4.1 mil. lats. The recovery trend in exports has not changed, but in October 2009 the surplus in both positions was larger for three main reasons. First, on account of seasonal factors (e.g., reduced grain exports), the exports of goods decreased, reaching the 2008 levels year-on-year. Second, the exports of services were lower, which is related to an unusually high level of financial services in October, with transport services at the previous level. Third, the received transfers had an increasing effect on the current account surplus as a result of the government selling greenhouse gas emission quotas.

Taking seasonality into account, November data support the trend toward increased goods exports, which will also continue in subsequent months. Data regarding services exports are less positive. Although the Baltic Dry index is on the rise, gradually recovering from the low level at the beginning of 2009, and transport opportunities to Central Asia are expanding, competition in this sector has substantially increased, precluding immediate benefits from a stabilized demand. The stricter border controls on the border with Russia have been temporarily lifted, yet they have had a negative effect on Latvian cargo services by truck.

The goods and services balance has been almost favourable in 2009 overall, but the current account surplus (8-9% of GDP) will be largely determined by the loss suffered by direct investment companies. A favourable impact on goods exports will be exerted by an improved price competitiveness and recovery of trade partner economies. Imports will recover at a slower pace, with domestic demand remaining low for some time. Thus it can be expected that, as a result of positive tendencies regarding exports, the current account surplus will continue to rise. Over the last few months, interest about foreign service centres in Latvia has been on the rise, but confidence in predictable fiscal policies is still a precondition for large-scale investment in industry.