January: the month of traditionally reduced external trade

According to the data of the Central Statistical Bureau (CSB), the value of Latvia's external trade turnover in January 2015 dropped 9.3% month-on-month, with export and import contracting respectively by 3.0% and 14.2%. It is usual for January to have lower external trade activity than the other months of the year, and the first month of this year was no exception. Behind the reduced external trade activity were both seasonal factors and the still weak external demand. The rate of yearly growth in goods trade was different: year-on-year, export rose by 5.4%, whereas import dropped by 3.5%.

The year-on-year growth of goods exports was beneficially affected by the increased exports of mechanisms and electrical equipment, construction materials, mineral products, printing and paper products, textiles (wool), furniture and base metals (export of iron byproducts and scrap metal to Turkey). Month-on-month, the greatest rise in January was observed in the export of base metals and their products. Growth was observed also in the export of wood, plant based products and mineral products.  The greatest drop compared to last December was posted for food products: by 44.0 mil. EUR. The drop in the export of these goods to Russia by 26.8 mil. EUR, incl. hard liquor - by 20.0 mil. EUR had the greatest impact.

The imports of goods contracted primarily because of seasonal factors: grain, fruit and construction materials suffered drops. The drop in the prices of oil and the related energy resources as well as the relatively warm winter that resulted in lesser consumption of heating energy were behind the drop in the import value of mineral products, including electrical energy. In January, a month-on-month increase in the imports of some consumer goods, for example, wearing apparel, footwear and textile products was observed, which was primarily determined by discounts on seasonal goods and the untypically warm winter with smaller heating bills.   

Up to now, the real amounts of Latvian manufacturing output and export have not gone down either as a result of economic sanctions or because of the weakening Russian economy; yet some stagnation is observed both in manufacturing and in export.  Data collected by the European Commission also point to pessimism of the industrial sectors, for the evaluation of both total orders and export orders has deteriorated, which points to a weak demand and heightened competition. Even though January is not really characteristic of the subsequent trends in the development of external trade, one can make favourable projections regarding the development of export and import in the coming months based on the fact that yearly growth remained in several of the largest export related sectors, for example, the production of electronic equipment and furniture and wood industry. Woodworking  was one of the main manufacturing and export engines last year, and the latest data point to a continuing trend this year as well.  In the previous year, wood industry made investments into the growth of the sector and planned to invest this year as well, which makes possible increasing of the percentage of products with high added value in this sector and in export.  

Future projections for metal production growth are also rather positive.  First, for a third consecutive month, the total EU economic sentiment index has been going up, including construction, which has acted to promote exports of wood, metal and other construction materials to the EU. Second, AS "KVV Liepājas metalurgs" resumed producing, in test conditions in February and officially in March; in February, the first cargo of production (15, 000 tons of steel reinforcements) was manufactured, which will be exported in March to Algiers.

Owing to global trends of people turning to a more healthy lifestyle and of an increased importance of food quality, the proportion of the food industry in Latvian export continues to rise with each passing year. Last year was rather worrisome for the exporters of agricultural goods and foodstuffs both with the rapid drop in prices and with the Russian introduced food product embargo.  2015 likewise does not promise to be easy for the sector: it involves \abolished milk quotas and low milk prices in the EU with the attendant increase in competition among the EU countries as well as the search for new alternative markets to compensate for the drop in Russian demand. Yet the food industry enterprises have faced various limitations more than once, including from Russia, and they are therefore ready to adjust to the new situation and work also in alternative markets. A crucial investment in its reputation and competitiveness has already been made by AS "Rīgas Piena kombināts", which was the first in Latvia to receive a particular production safety certificate, FSSC 22000, which testifies to the conformance of the enterprise to international standards and represents a very important step in developing the export markets for the enterprise. In the near future, AS "Valmieras piens" may also receive the same kind of certificate. There have been reports in the media that Russia is considering the possibility of allowing some EU countries (one would hope, also Latvia) to resume exporting food and such an agreement would apply to delicacies, some dairy and meat products, including both traditional and niche products. In grain exports, the situation also seems hopeful, as the consumption of grain continues to grow.  

The improvement in international evaluations (on 13 February 2015, the international ratings agency "Moody's” raised Latvia's credit rating from "Baa1” to "A3”, with a stable future outlook) may increase investment activity also in the production sector, which is necessary to raise export potential. It is also of essence to make purposeful state and local government investments in the production infrastructure to enhance Latvia's attractiveness in the area of industrial investment. 

APA: Pelēce, D. (2024, 24. apr.). January: the month of traditionally reduced external trade. Taken from https://www.macroeconomics.lv/node/1977
MLA: Pelēce, Daina. "January: the month of traditionally reduced external trade" www.macroeconomics.lv. Tīmeklis. 24.04.2024. <https://www.macroeconomics.lv/node/1977>.

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