European problems affect Latvia's foreign trade

In November 2011 the external commodity trade turnover dropped slightly reflecting the impact of global developments on goods exports and imports. As the economic activity of some Latvian export trade partners weakened and price pressure abated, the exports of goods dropped 2.4% and goods imports dropped 5.6% month-on-month after growing for three consecutive months and achieving record volumes in October.

The growing uncertainty relating to the debt crisis in the euro area countries has had a negative effect on Latvian goods exports and November gave the first signs of slowdown in the hitherto dynamic goods exports development. This fact is hardly surprising because a drop in exports, given the deteriorating of conditions for foreign trade and weakening of demand in external markets had been expected already in previous months. Compared to October a drop, albeit small, was experienced in most of the main groups of export goods: wood pulp, mechanisms, electronic equipment and mineral products. Growth was retained in the exports of metals, means of transportation and food products.

In the Latvian goods imports, the drop in intermediate consumption goods was the most rapid, indicating that imports are still related to the growth of manufacturing industry branches and their need for raw materials. A month-on-month drop was experienced in the imports of base metals, wood pulp, and plant products. Growth was retained in the imports of electronic equipment and electrical appliances, which was probably the effect of the end-of-the-year seasonal growth in consumption related to the holiday season's sales campaigns. It can be expected that in the December imports consumer goods could post a growth for the same reason but this trend will not last in 2012, because a rapid rise in domestic consumption is not expected this year. Even though the evaluation of new order amounts deteriorated in December as indicated by the European Commission's confidence indexes, the assessment of their future prospects by the entrepreneurs in the main export branches (wood pulp and metal products) is not worsening notably. Both the manufacturing growth indicators for November and announcements by businesses that after a drop in orders in autumn months their amounts are once again growing leave room for hope that at least in December and the first months of 2012 exports will not drop rapidly either. The November manufacturing data point to a growth in such industries as the production of chemicals, pharmaceuticals and non-metallic minerals.  The production of these branches contributes importantly to the exports to the CIS and Asian countries where a drop in demand is not expected, just the opposite being the case. The Latvian export market shares up to now have been demonstrating solid growth in the rapidly growing economies, giving reason to hope that the competitiveness of export businesses is adequate and Latvian producers will be able to restructure exports emphasizing their presence in export markets with growing consumption. Nevertheless, this could cushion the effect of the weakening demand in the hitherto most important EU trading partners only to a degree.

Albeit no rapid export growth against the current level is expected in 2012, the efforts of Latvian exporters in diversifying their supply of goods and increasing market shares will help to maintain the levels reached up to now and will prevent a drop in export volumes.