Exports continue to support the recovery of the Latvian economy

In April of 2010 the Latvian foreign trade turnover continued to increase as a result of a substantial rise in exports compared to the previous months. In April exports grew 5.4% over March and 33.4% year-on-year.

The recovery of the foreign markets and the rise in the competitiveness of Latvian producers permit exports to be the engine of the current moment in the economic recovery process. The continuation of a positive trend in exports was already indicated by the situation survey data. The processing industry data point to sharp differences in the growth of particular sectors in April: a substantial growth was observed in those sectors with a greater proportion of products manufactured for export. Positive processing industry annual changes were observed in the manufacturing of wood pulp, paper, printed matter, metals, and transport vehicles, and the positive contribution of these sectors was dominant also in the increase of goods exports. Thus, for example, the exports of wood, cork, and their products grew 78.6% over the year, the exports of iron and steel products 92.2%, and the exports of printing industry twofold. A slight drop in exports was observed only in a few sectors: chemical industry products and some food and textile industry products.

The data on the first quarter of 2010 indicate that the share of Latvian exports has grown in the markets of several important trading partners, e.g., Sweden, Great Britain, Finland, Poland, and Denmark, and the positive changes in market shares are moreover determined by the growth in the exports of Latvian goods instead of a decrease in trade partner imports that was characteristic of 2009.

With exports growing, a growth in imports could be expected (mainly on the account of intermediate goods, i.e. those necessary for production), yet in April imports fell 3.3% compared to the previous month. It is possible that in part this was the result of a more rapid rise in imports in March as well as the persistently weak domestic demand that slows down any increase in goods imports. As exports grew and imports fell slightly, the trade balance improved to ‑51.1 mil. lats, which implies a trade deficit almost half of what it was in the same period a year ago.

The assessment of the volume of export orders deteriorated for a limited time in March, but in April and May it resumed improving. Other confidence indicators are likewise improving, thus a rise in exports can be expected in the next few months as well. The export development risks in the next few periods are related to a possible slowdown of recovery in those EU countries that are currently trying to solve important problems with their national budgets and debts. In services exports risks are related to the developments in the last half of the year when there may be a lack of cargo transport licences for operating in Russia.