Export continues to stubbornly resist the geopolitical circumstances
According to the Central Statistical Bureau data (CSB), in May 2016, the goods exports and imports remained almost at the April level, posting only a slight month-on-month rise, 0.9% and 0.4%, respectively. Year-on-year, the export and import value of goods has increased by, respectively, 4.4% and 2.9%, which is remarkable, given the unstable external environment and continued low external demand.
The greatest month-on-month increase in goods exports in May was posted by base metals (exports to Turkey), land transport vehicles (exports to Lithuania, Estonia, Belgium, Germany, Denmark and Poland) and pharmaceuticals (exports to Uzbekistan, Russia, Estonia, Belarus, United Kingdom and France).
In the first five months of this year, goods exports dropped by 3.5%. year-on-year. The greatest negative contributor was the drop in the exports of mechanisms and electrical equipment, textiles and mineral products. Yet in several important export goods groups, for instance, agriculatural and food products, wood products, chemicals and construction materials growth remained positive this year.
In the period at hand, good exports shrank to the European Union and the Commonwealth of Independent States (CIS), whereas, exports to African countries (Kenya, Djibouti, Tchad, Ethiopia, Morocco, Mauritania, Nigeria, Senegal, Uganda) and Asian countries Uzbekistan, Saudi Arabia, Turkey and the Philippines represented a positive contribution to export growth.
Latvian exports to Russia continue to diminish – in five months, by 15.4% or 47.5 milj. EUR year-on-year. The proportion of Russia in total Latvian goods exports had also dropped - from 11.6% in 2013 to 6.5% in the first five months of 2016.
Despite the weakening of trade ties between Russia and Latvia, Latvian entrepreneurs continue to see good prospects with regard to the Russian market. Although Russia has decided to extend the agricultural products embargo set for the EU and other countries, a small opening for food and agricultural producers is already the case since , the Russian government has decided to ease the embargo regulations on beef, poultry and vegetables, which are intended for producing baby food. Right now the conclusion of the inspectors of Russian federal veterinary and phytosanitary oversight service "Россельхознадзор" is also awaited after their visit to Latvia during which two groups inspected those producers of Latvian fish products as well as animal food who have the relevant trade certificate with Russia. The possibility is not excluded that, in case the conclusion is positive, negotiations could resume on the export of Latvian fish products to Russia. The above factors could at least slightly stabilize exports to Russia.
External demand is still very fragile and, parallel to the many challenges in export, last month's news about the referendum in the United Kingdom has given rise to many discussions about the impact of Brexit on Latvia's future external trade. Within the next few years, fundamental changes in export, related to Brexit, are not expected (https://www.makroekonomika.lv/maija-labs-apstrades-rupniecibas-sniegums-brexit-sekas-vares-just-tikai-nakotne), for goods exports to the UK amount to only 5.3% (in 2015) of total exports of Latvian goods; moreover, there are historical roots to the cooperation between Latvia and the UK in the area of trade. The main Latvian export goods to the UK are wood and its products, mechanisms and electrical equipment, but these groups of goods, if legal changes in the trade relationship between the two countries came to pass, would probably be possible to redirect to other countries.
The construction sector, incl. wood exporters could be negatively affected by the slowdown in the British real estate market, as well as the stopped or frozen investment projects, decreasing the demand for construction products and raw wood.
Brexit could have a negative impact on export in the more distant future, for investments play an important role in maintaining growth in Latvian goods exports. Since the United Kingdom is one of the largest payers to the EU budget, the financing from EU funds available to Latvia may drop after the British exit from the EU, and it is EU financing that hitherto has made a fundamental investment in the growth of Latvian economy. Reduced access to EU funds is a substantial risk for investment development, for right now, no significant investment projects that could maintain export growth for any length of time are seen as far as export businesses are concerned. Private investments of businesses are curtailed by the negative geopolitical situation and the low growth of the global economy, therefore it will be increasingly important to think how to develop an environment attractive to investors as well as the image of Latvia as a possibly productive investment country.