Total goods and services exports exceed imports

According to the September balance of payments data, and in the third quarter as a whole the total goods and services exports exceeded imports for the second quarter running in keeping with the positive trends in goods exports. Decreases in the losses suffered by direct investors, on the other hand, determined a decrease in the current account surplus to 9.2% of GDP.

As services imports grew slightly faster than exports, the services account surplus in the third quarter was a little less quarter-on-quarter. A volume of transport services exports smaller than in the previous months was determined in September by both reduced (probably seasonally) passenger transport services exports and a decrease in cargo transport by rail. As a result, the continuously growing export by rail volumes of previous periods were almost the same as a year ago.

With the flows of capital in the banking sector stabilizing and the inflows of own and other capital exceeding the losses of direct investment companies, the increased flows of capital and the finance account were determined in the third quarter by government borrowing and the related increases in reserve assets at the Bank of Latvia.

It is expected that as a result of increased foreign demand and improved competitiveness, the export-import ratio will continue on its improvement trend. Note that there is an increased uncertainty regarding the cargo transport export volumes, which amount to about one tenth of total Latvian exports, because along with the development of new trade routes (particularly to Central Asia), there has appeared keen competition regarding the transport of these and other cargoes. The total goods and services balance for 2009 is expected to be close to integrated, albeit slightly negative as a result of the first quarter deficit. The current account surplus will be mostly affected by the losses suffered by direct investment companies, which, as a result of seasonal factors are most likely to increase in the fourth quarter.

We predict that in 2010 the total goods and services balance will continue to improve and will begin to stabilize in the second half of next year when, as a result of increased foreign demand, Latvia’s economic growth will resume and domestic demand will increase stimulating imports. Next year as well the current account surplus as a whole will be determined by direct investment company losses, which are expected to be slightly lower than this year. Inflows of new capital, including in the form of direct investment, will to a large extent depend on the perceived stability potential of the business environment, which can increase substantially if the government fiscal and taxation policies are consistent.