Export growth by branch is fragile and unstable

According to the data of the Central Statistical Bureau (CSB), the external trade turnover in October increased by 1.3% month-on-month. Within a month, the export value of goods increased by 2.8%, whereas the import value did not change substantially – there was a 0.04% decrease.

In October of last year, goods exports demonstrated a monthly high, exceeding one billion euro, which has yet to be surpassed. Thus in October of this year, the exports of Latvian goods have dropped by 6.5% year-on-year, which, given last year's relatively high base and low demand in external markets, is not a bad result. In October, a positive month-on-month increase was observed in the exports of foodstuffs, including starch, dairy and pastry products, wood and wood products, electrical equipment and appliances, plastic products, paper, mineral products, several manufactured articles, including furniture, toys and sports inventory. The export value of plant products in October did not exceed the September indicator, but the year-on-year increase was 20%. A month-on-month drop in October was experienced by the hitherto growing exports of optical and medical equipment.

In the first ten months of this year, goods exports increased by 1.0% year-on-year, posting a rise in the exports of plant-derived products, wood and paper products, chemical industry products, plastic products, construction materials, mechanisms and electrical equipment and different manufactured articles. A positive factor is the fact that it is goods groups with added value created in Latvia that currently help to maintain export growth, for example, wood products

Albeit the recession in the Russian economy, drop in the value of the rouble and the imposed sanctions have had a negative impact on the exporters of some industries, a partial compensation has been increased exports to the countries of Central Europe (the Netherlands, the Czech Republic, the United Kingdom, France, Romania and Bulgaria), Nordic countries (Denmark and Sweden), Asia (Algiers, UAE, Saudi Arabia, Turkey, Hong Kong, Singapore, Turkmenistan, China, Uzbekistan etc.) as well as to the United States and Lithuania.  The proportion of the Russian demand in the Latvian exports structure has dropped from 11.6% in 2013 to 7.8% in the first ten months of this year.

Albeit the year-on-year growth of goods exports this year has been in the positive range, the growth has been very fragile and, moreover, unstable in the breakdown by branch. A positive development is the gradual recovery of foreign demand, yet demand is still weak in the external markets and competition in the main markets is becoming keener: this is borne out by the data published by the European Commission, in which the evaluation by entrepreneurs of competitiveness in the fourth quarter within the European Union (EU) continued to deteriorate; the evaluation of the export orders in November has likewise deteriorated. Despite decreasing optimism regarding the economic prospects in several developed and developing countries, the outlook on competitiveness outside the EU and in the domestic market has improved. That indicates that entrepreneurs are not without hope and are continuing to vigorously look for new possibilities for selling their production. Under crisis circumstances, Latvian manufacturers have proven to be capable of improving their competitiveness with varying their export supply and introducing innovations. They also increase added value and market shares, which helps to maintain what already has been achieved and to prevent a drop in exports. An increasing number of entrepreneurs are active in the Asian markets and new markets are being found in the Balkan countries and elsewhere in Europe.

No fast change is expected in the increase in goods imports because, on the one hand, the growing domestic demand can roster a rise in consumer goods imports, but, on the other hand, import growth is determined by the need of exporting branches for raw materials and investments, therefore, the growth of imports of capital goods will be closely related to the trends in export development. One of the risk factors for the growth of external trade and economy is the relatively unstable external environment, which, since beginning of  2013, has impeded the introduction of enterprise investment projects in Latvia. This year, there has been some rise in investments and therefore, along with the recovery of external demand, quality and productive investments in the export sector will become all the more important.