Export pauses before continuing ahead
According to the data of the Central Statistical Bureau (CSB) the goods external trade turnover in March 2016 increased by 9.6% month-on-month, but dropped by 6.3% year-on-year. Although month-on-month the export and import values of goods increased respectively by 7.1% and 11.7%, the annual growth rate in goods trade continued to be negative for a fourth consecutive month: export dropped by 4.9% and import by 7.4%. The weak economic growth observed with Latvia's external trade partners has curtailed the demand for Latvian goods and prevents a rapid increase in goods exports.
Compared to February, the rise in goods exports was ensuerd by increases in the exports of chemical industry products (mostly pharmaceuticals and fertilizers), mineral products, food industry products (alcoholic and nonalcoholic beverages, meat and fish product, vegetable processing products), construction materials (glass, rock and ceramic products), mechanisms and mechanical equipment, base metal products, transport vehicles (trators, their equipment, mechanical transport vehicles for the transportation of goods) and furniture.
In the first quarter of this year, goods exports dropped by 5.4% year-on-year. The greatest negative contributor to the drop was the decrease in the exports of mechanisms and electrical appliances, mineral products an textiles. A positive contribution was maintained by the increased exports of plant-based products (corn), wood products. chemicals, foodtuffs, construction mterials and paper products.
Viewing goods export by country, it becomes obvious that it has contracted to the traditional partner markets, including the Baltic countries, European Union members and Russia. A positive contribution to export growth in the first quarter was made by exports to more distant and more exotic countries: Algeria, Djibouti, Ethiopia, Kenya, Chad, Uganda, Marocco, Mauritania, Nigeria, Egypt, Uzbekistan, Saudi Arabia, the Philippines and the UAE. Yet this increase could not compensate the decrease in exports to the traditional partners' markets.
Goods import decreased in the first quarter by 8.2% year-on-year, primarily as a result of the contraction of the imports of mineral products, mechanisms and electrical equipment, base metal products and transport vehicles.
In recent years, economy both in the euro area and the world at large has been growing slowly overall, and predictions regarding the growth of Latvia's partners are mostly adjusted downward. The Russian-imposed temporary sanctions on the import of dairy and fish products have had a negative impact on the activities of Latvian exporters of these groups of products. At the same time, sanctions have stimulated entrepreneurs to find new markets, as well as to diversify their product, creating new innovative and niche products. For example, last year cheese, butter and milk powder exports were launched to previously unchartered countries, including Kazakhstan, Saudi Arabia, Austria, Tunisia, China and Malta. Latvian foreign trade is still subject to external risks, primarily in connection with the weakening of the growth rates of developing countries and the geopolitical situation. The negative emotional background created by the geopolitical events has an impact on the actions of all economic participants –both on consumers who choose to spend less and accrue more and producers who postpone their investment projects.
As evidenced by the confidence indicators published by the European Commission, the complicated situation in the global market has not prevented Latvian entrepreneurs from giving an improved assessment of order amounts in the second quarter of this year and export prospects are considered good. It means that Latvian entrepreneurs still have a possibility of increasing their export market shares, yet new high quality products and trademarks are needed to achieve this goal. The growth of the euro area GDP in the first quarter and the slowing of the drop in the growth of the Russian economy invites hope that the external demand will stabilize.
The 11 May decision of the Organization of Economic Cooperation and Development (OECD) Council to invite Latvia to become a full 35th member of the OECD could stimulate potential investors to invest in new projects or the existing enterprises to expand their full load capacities. It could also foster direct economic cooperation with the OECD members and help Latvia to become more recognizable in countries in the economic and trade cooperation with which full potential has not been used.