External trade growing in February

In February 2012, the Latvian goods external trade turnover grew by 5.1% year-on-year. The export value of goods rose by 4.9% and import value rose by 5.1% within a month. The goods trade deficit reached 154.3 mill. lats at the end of February.

The rate of annual growth of Latvian exports 16.7% was slightly increased in February compared to December and January. In February month-on-month increase was recorded for export of grain products, mechanisms and mechanical equipment, mineral products and food products. The export value dropped for wood pulp and its products and transport vehicles and the exports of pharmaceuticals continued down for a fourth consecutive month.  In the previous three years of economic recovery, the Latvian entrepreneurs have managed to improve their competitiveness considerably and the growth in manufacturing volumes in most branches has been the direct result of increased sales in the export markets. This successful experience of the last few years may be at the bottom of the optimism of Latvian entrepreneurs regarding the possibility of increased export volumes this year as well even despite the negative external background arising from the uncertainty regarding Europe's economic future.

The staying power of optimism is attested to both by the business and exporter confidence index published by the European Commission, which has remained unchanged in March, and by the results of the Citadele Index survey conducted by the research centre SKDS and Citadele Bank (published in April 2012), in which 750 Latvian businesses of different branches and sizes were surveyed. The data of the survey indicate that more than half or  57% of enterprises in the export business in 2012 are planning to increase their export volumes over those of the previous year and that other plans for 2012 are also increasing instead of diminishing: more than last year, entrepreneurs are planning to invest in the development of their businesses, a greater number than last year are planning to purchase new equipment or technologies, and the upward trend year-on-year continues regarding the plans to grant new services or manufacture new products.

For example, using the possibilities inherent in its wide product range and stable quality, AS "Gutta" plans a 5% export growth outside the Baltic region and in some markets even more (in 2011 exports grew 3%), whereas the enterprise "NP Foods" will invest 2.8 million lats in the development of its production aiming to begin the manufacturing of new innovative products and foster the competitiveness and export potential of its cookie brand "Selga" while the garden furniture manufacturer "Ekju" is planning to invest 1.5 mill. euro in the modernization of its production unit and current assets. The "survival potential" of Latvian entrepreneurs is also evidenced by the information from the head of the Pig Growers Association that within two weeks after Russia banned imports of livestock from the EU countries, Latvian pig growers found new markets (primarily in Lithuania, Estonia, and Poland) and are not suffering any great losses.

The imports of goods have grown 22.3% year-on-year. Month-on-month, the growth was most rapid in the imports of mineral products, base metals and their products, chemicals and foodstuffs. As in January, the rapid increase in the imports of mineral products resulted from the rise in oil product prices in the global market – a trend that would continue in March. Retail growth, which was the case in January, in February did not continue and there is no reason to expect a rapid growth in consumer goods imports this year. As before, imports will depend on manufacturing developments, impacting the imports of intermediate consumption goods and investment flows.

The economic trends in the euro area are hardly a cause for optimism. Export growth under such conditions can be maintained by acquiring new markets, expanding the base of business partners and broducts, carefully weighing what is required by each market and determining which products have the greatest potential. It is essential to expand exports to Russia, which is a specific yet large market with good prospects. Another essential factor for the development of branches and enterprises is foreign direct investment and, as indicated by the Lursoft data base, foreign investment has been made in several manufacturing businesses at the beginning of this year, aiming to increase the efficiency of production, capacities and turnovers. Thus in January foreign direct investment in the amount of 2.3 million lats was made from Cyprus in the Āne production unit of SIA "Lode" with the aim of improving efficiency in the production of clay bricks, tiles and other glazed construction materials;  2.2 mil. lats came from Estonia for the second stage of the construction of the new air  distribution unit of  "Elme Messer Metalurgs", which will ensure meeting the need for technical gases, oxygen and nitrogen, by smelting equipment by producing them on the spot, and in February 1.0 mil. lats was received from Austria for the production of railroad engines, rolling stock and metal constructions by SIA "Voestalpine VAE RĪGA."