Export growth in August improves the current account balance
Since a substantial growth in the exports of Latvian goods is continuing while import growth is more moderate, the current account deficit in August remained at a low level, i.e. 27.6 mil. lats.
The goods external trade deficit in August dropped to 117.3 mil. lats. Export growth was promoted by the competitiveness of Latvian exporters and their reorientation to the rapidly growing export markets.
Like in goods exports, growth in services exports has also been sustained pointing to Latvia’s increased competitiveness in this sector (in eight months of this year, there has been a 13% growth year-on-year), with the value of travel services and those of services less important in the export structure but growing rapidly (construction and communications) increasing in August. With the import value growing at a more moderate pace (the values of received travel and financial services increased in August), such development provides for retaining a positive balance in the services external trade (83.5 mil. lats in August).
The negative balance of the income account dropped slightly, to 9.9 mil. lats while the positive balance of the current transfers account dropped to 16.1 mil. lats. The positive balance in the capital account was the result of an influx of finances from the EU Regional Development Fund and Cohesion Fund that had previously been temporarily held up. From EU funds Latvia received a total of 191.1 mil. lats in August. The inflows of direct investment also continued and the negative balance in the finance account dropped to 59.4 mil. lats in August.
Even though the international credit rating agencies in September downgraded the EU growth predictions, the data on both goods and services external trade indicate that Latvian exports have managed to grow substantially even at the time when economic growth has been limited in other countries. Since crediting activity is still low in Latvia, domestic demand is less than likely to exert an upward pressure on the goods import value in the near future and the external trade balance will thus not deteriorate substantially therefore a moderate current account deficit is therefore expected for the 2012 overall.