The external trade balance of Latvian goods continues to improve

Although the total demand in the external markets is low, the external trade turnover of Latvian goods in October rose by 6.7% month-on-month. The export value of goods has risen by 8.4% month-on-month and import value by 5.3%. Along with a more rapid rise in goods exports, the external trade balance of Latvian goods continued to improve, reaffirming the sustainability of competitiveness of Latvian producers even in relatively unfavourable circumstances.

Goods exports have risen in the last three months, and in October the export value of goods was close to what it was in October of previous year – lower by only 0.9%. The greatest negative impact in the annual growth of exports was still made by metallurgy, shrinking exports (re-exports) of transport vehicles as well as smaller plant-derived exports, for the substantial rise of the previous year in this group of goods was on account of the rise in global prices and good harvests.

In the first 10 months of this year, exports have retained a 3.4% growth, posting a rise in almost all main groups of export goods, with the exception of base metals and their products as well as transport vehicles. In October, there was growth in exports of plant-derived products (a substantial shipment of wheat and a mix of wheat and rye to Saudi Arabia. the Netherlands, Iran and Haiti), foodstuffs, optical equipment, textile products, plastic products, mechanisms and electrical equipment, construction materials and wood, whereas of the most significant groups of export goods, the exports of base metals and their products as well as mineral products experienced a drop.

According to the third quarter data of the World Trade Organization, the Latvian export market shares in global imports continued to rise, albeit at a slower rate than a year ago. Last year, Latvian entrepreneurs managed to achieve export growth by raising exports and expanding the market to less familiar parts of the world (outside the European Union - EU), but this year, as the EU economies are gradually recovering, expansion of Latvian exports in the direction of EU countries is once again observed.

The goods imports have dropped 7.9% year-on-year, mostly on account on the base effect (in October of the previous year, there was a rapid rise in imports).

With the economic situation in the EU gradually stabilizing, it can be expected that Latvia's export opportunities could improve slightly at the end of this year. According to the data published by the European Commission, the evaluation of export orders improved in November. Confidence data for the fourth quarter likewise indicate that the evaluation of export order volumes and business outlook for competitiveness in the EU have also improved. The Citadele Index report compiled by Citadeles Banka and research centre SKDS indicates that the total business confidence still remains optimistic and it is the exporting businesses that feel rather comfortable as is obvious from the growth of the index compared to the second quarter, yet, under the impact of unstable external environment, a slight drop in business optimism has been observed for a second consecutive quarter. Evaluating business confidence by branch, a slight rise in optimism is observed in the trade branch, which may be related to the fact that the entrepreneurs of this branch are expecting a rise in consumption as before the holidays and euro changeover, the Latvian population will spend the accrued lats. In the branch of other services, production and construction, on the other hand, optimism has waned.

Even though this year the growth of Latvian economy is based on domestic demand and annual growth rate of exports has dropped, it is expected that in 2014, as growth takes root in Europe and the world, the role of exports in Latvian economic growth could once again increase. In the World Bank "Doing Business" study of 2014, Latvia rose by one position: from 25^th place in the 2013 study to 24^th, and an improvement has been achieved in several positions: starting a business, improving the construction process, accessibility of loans, investor protection, tax-paying and fulfilment of contract obligations. In the global competitiveness rating (GCI) Latvia also improved its position by three notches, placing 52nd among 148 countries. In the GCI indicators (2013-2014), Latvia has substantially improved in regard to the evaluation of the efficiency indicators of the macroeconomic environment, goods market and financial market. The improvement in the international evaluations as well as the renewal of external demand and the sustained growth of the Latvian economy may also augment investment activity in the production sector, which is necessary to increase its export potential.