Export growth has improved the external trade balance of Latvian goods
The external trade turnover of Latvian goods in February 2014 grew by 5.1% month-on-month. Within a month, the value of goods exports increased by 7.9% and that of imports by 2.8%. With a more rapid growth of goods exports, the external trade balance of Latvian goods increased slightly.
The annual growth of goods exports in February was at 2.9%. This was the result of a positive impact of the increase in the exports of agricultural and food products, wood, textile products, electrical equipment, and construction materials.
In February the most rapid month-on-month export increase was in plant based products resulting from a substantial rise in the exports of a mixture of wheat, barley, and rye to Kongo, Iran, and Libya. Increase was posted also by base metals and their products as well as transport vehicles, whose exports up till then had been dropping for several months. Within a month, exports of goods increased to all main trading partners, including Russia. Goods exports dropped month-on-month to the Scandinavian countries (Sweden, Finland, Norway), moreover, there is a drop in exports to these countries also year-on-year. As of May 2013, export growth continues to be negative to Estonia. This trend and the uneven growth of the Scandinavian countries do not give rise to any hopes for an expanded market for export goods in these regions in the near future.
In February goods imports registered a year-on-year drop by 1.5%. The drop in imports was mostly determined by diminishing imports of land-going transport vehicles and their parts, base metals, and mineral products.
As far as the impact of the events in Russia and Ukraine on goods exports is concerned, Latvian businesses have had diverse reactions: some have frozen a part of their production volumes, whereas others are using this time to expand or diversify their exports. Owing to the tense situation, some of the international players have left the markets of these two countries, thus opening up trade opportunities to those who have remained. As indicated by mass media, for instance, AS "Laima" is not encountering problems in its export markets, just the contrary: after some of its competitors have left, the enterprise is planning a 30% export growth in Russia this year. Albeit at the beginning of March several Latvian fish processing plants halted their deliveries to Ukraine and cut their exports to Russia because of the tense political situation and the drop in the value of the national currencies of these countries, most businesses are not predicting any reductions in their production volumes, expecting to redirect their products to other markets.
Although a gradual improvement in the economic situation in the euro area countries is continuing, there will remain external risks related to the impact of the geopolitical situation of Russia and Ukraine on the exports of our goods if the unstable situation persists and political obstacles arise in the form of any economic sanctions. Risks are mostly related to the drop in export opportunities in Russia, because it is Latvia's third largest partner in goods exports (11.5% of all goods exports in 2013), and they will be concentrated in particular branches, e.g., food industry, fisheries and pharmaceutics.
The Ukrainian proportion in total exports of Latvian goods is small (0.9% in 2013) and its drop will not have an important impact on total exports.
In the European Union (EU), where Latvia sells over 70% of its total goods exports, the economic situation is gradually improving, thus giving rise to expectations of a more robust external demand in these markets, compensating the negative impact of the conflict between Russia and Ukraine.
A growing external demand in the EU could be one of the factors that could stimulate investment activity in the producing sector, which is necessary for raising the export potential. At the same time, increased uncertainty may make the businesses that mostly export to Russia and the CIS countries to postpone investments.
It is important to remember that the economic crisis and difficulties often serve as a stimulus for businesses and even entire countries to generate new models of activity – not only in terms of surviving but improving their competitiveness. Thus with regard to the events in Russia and Ukraine new opportunities arise, e.g., businesses with disposable resources that have a long-term view of the Ukrainian market may use the chance to purchase or apply for long-term rent of commercial space that hitherto was outside of their reach.