Export value reaches a new record high
While in Western Europe worry about an economic recession continues, Latvian export volumes continue to grow rapidly, reaching a new monthly high in August. Month-on-month, the external trade turnover grew 8.1% in August. With export growing 12.7% and import 4.6% month-on-month, the goods trade balance improved and the import excess over export in August dropped to 127.6 mil. lats.
Within a year, the goods export value has increased by 14.9%. Even though there was a rapid rise in exports in August of last year, the high base has not reduced the rate of growth and the annual increase in goods export value has remained substantial.
In August, the exports of vegetable products posted the most rapid month-on-month rise. Mostly it was determined by exports of cattle feed, which grew substantially, and the explanation here could be both by the rise in grain prices in the global market and the record high, albeit low quality, grain harvest in Latvia. Export growth was observed in all the other main goods export groups as well.
It is interesting to note that in 2011 exports posted an average monthly growth of 1.5%, whereas in 2012 this indicator has been higher: in the eight months of this year, the monthly export value has grown 2.9% on average. Up to now, export growth was determined both by prices and export volumes whereas now, with the price influence dropping, the growth in real volumes is beginning to play a greater role. Along with the positive manufacturing indicators that grew in August for a third consecutive month, there is no doubt that the main driver behind export growth in Latvia has been increased production.
In all of the most important export branches, growth more or less continued, which, under the conditions of increased competitiveness, has allowed exporters to not only retain the existing markets but also to continue conquering new market sectors. The results of the research entitled “Latvian Entrepreneurs Conquer the World” or “The Nordea Vitametre” by Nordea Bank and Stockholm School of Economics in Riga likewise indicate that it is the manufacturers (34%) and wholesale trade businesses (26%) that are the exporters, most often choosing the Baltic States, Scandinavian countries, Germany, Russia and other countries or the European Union as their export targets.
The annual growth in goods import value by 8.0% was promoted both by the August rise in the prices of resources, including grain, and a gradual recovery in household consumption. Even though the excess of goods imports over exports is still more related to the expansion of manufacturing and investment activities, growth of the Latvian economy is also evidenced by the moderate growth dynamic observed in the imports of consumer goods resulting from increased real purchasing power and improved consumer confidence. Year-on-year, the imports of mineral products, chemicals, and vegetable products have posted a substantial growth in August.
As the European Commission (EC) confidence indicators show, confidence of Latvian entrepreneurs regarding future prospects has improved both in evaluating future order volumes and output volumes. The EC confidence indicators for the third quarter have improved, as opposed to all other EU countries, both in terms of export order volumes and competitiveness domestically and in the EU.
The export entrepreneurs surveyed by "Nordea Vitemetre" also testify that they are not willing to stop at what has been achieved and are planning to become even more active in foreign markets; moreover one out of three predicts an annual increase in exports by at least 20% within the next two years.
Trends in the economy of the euro area as well as the pessimism shown by entrepreneurs and consumers in Latvia’s trading partners does not give rise to any hope for a rapid improvement in external demand in the near future. Although the EU countries overall are still Latvia’s main trading partner, the map of Latvian exports is expansive enough. At the moment Latvian exports are posting a more rapid growth in those countries that are outside the EU and that acts to compensate, at least in part, the drop in demand in the EU countries. The Latvian export market shares indicate notable growth in the rapidly growing economies, e.g., India, China, and several other Asian countries (UAE, Azerbaijan, Kazakhstan etc.), inviting hope that the competitiveness of the exporters is at good enough level so as to let Latvian producers to restructure exports to export markets with a growing consumption. There are no predictions that domestic consumption could resume any time soon, thus no substantial change is expected regarding increases in imports of consumer goods.