Export growth slows

In October 2010 the Latvian trade deficit continued to shrink reaching 80.2 million lats. Both export and import volumes dropped month-on-month while the annual growth rate, albeit lower than before, remained quite high, at  24.9% over the year for exports and 27.9% for imports.

As predicted earlier, as the base effect dropped off, the annual growth rate of exports in October continued to drop as it had in September. In the first 10 months of 2010 exports grew in almost all groups of goods and to all main trading partners. This successful development was the result of both growing foreign demand and increasing competitiveness. The greatest contributors to the annual export growth were wood pulp and ordinary metal products. In October, i.e. in the course of a month, the greatest annual export growth was posted by pharmaceuticals, wood pulp and wood pulp products, and metals and their products (particularly those of iron and steel). The advantageous dynamic of competitiveness allowed us to increase our market shares in the markets of almost all of our main trading partners: Lithuania, Estonia, Russia, Poland, Finland, Germany et al. Evaluating the role of particular countries in export growth, the main contributors to the recovery of Latvian exports were exports to Russia and Lithuania .

As economic activity grew and with it, the need of exporting industries for raw materials, the demand for intermediate consumption and capital goods imports, which was observed also in October when the imports of metals and their products as well as mineral products and transport vehicles.

Even though an overall recovery of the main trading partner economies is observed and the measures taken by enterprises to improve their competitiveness have been successful in helping to raise exports and increase market shares, a number of factors that may have a negative effect on Latvian exports in the future are coming into plain view: next year, export growth could slow down. Problems in the European financial markets and recent events related to the financial difficulties of Ireland and other countries can have an adverse effect not only on the euro zone but also the recovery of the other EU countries, dampening the economic activity of Latvia's export partners. The confidence indicators published by the European Commission (available for November) also point to a more pessimistic outlook of entrepreneurs regarding the future export opportunities. The raising of taxes planned for next year can also reduce competitiveness and have a negative effect on the availability of credit resources necessary for enterprises thus dampening the chances of further development of export enterprises.
It is likely that next year the growth of export volumes will be fostered by foreign direct investment made to manufacturing industries in the last few months of this year aimed at expanding the existing production units and opening new ones in the construction materials and metal processing industries.

To promote further improvement of the credit ratings and ensuring investment in increasing export capacities, a timely adoption of the 2011 national budget is vitally important while continuing to carry out structural reforms based on long-term measures.