External trade optimism down in November
After the good export indicators reached in October, the Latvian goods export amounts contracted in November. Month-on-month, the external trade turnover dropped by 9.4%. With the goods exports and imports contracting by 13.4% and 5.7% respectively, the goods trade balance deteriorated and the excess of imports over exports increased to 158.5 mil. euro in November.
The drop in Russian demand and falling rouble as well as the weak growth in the euro area in 2014 were the main obstacles for Latvian good export growth. Yet despite the complicated geopolitical and macroeconomic situations as well as the weak demand in the external markets, the exports of Latvian goods in 2014 continued to gradually crawl upward, albeit at a very moderate rate. In 11 months, the goods exports have retained a 2.2% increase year-on-year, posting growth in the exports of foodstuffs, chemical industry products, plastic products, wood and wood products, construction materials, mechanisms and electrical equipment, optical devices and apparata. Evaluating the 2014 results, the representatives of several industries have admitted to having been able to improve their positions in some export markets despite the economic and political instability of the external environment. This is borne out also by the increase in the shares of Latvian export market in global imports.
The negative consequences of the embargo introduced by Russia to several Latvian enterprises have been alleviated by the promotion of production exports to other markets. It is noteworthy, that the Russian sanctions have acted to raise patriotism in Latvia and the population increasingly chooses to purchase Latvian produced goods. In November exports to Russia dropped by 15.4 % (or 19.4 mil.euro) month-on-month, but over eleven months, they have shrunk by 3.5% (or 36.5 mil. euro) year-on-year.
In November, the Latvian goods imports dropped by 5.7% month-on-month. Intermediate consumption goods underwent the fastest decrease because of the growth of manufacturing industries and its weaker need for raw materials, as well as falling oil prices. The contributors to import growth were foodstuffs, electrical equipment and electrical appliances, which could be related to the seasonal increase in consumption at the end of the year resulting from Christmas and year-end sales campaigns. For this reason, the proportion of some consumer goods may be expected to increase in import in December as well. In eleven months, the imports of goods have dropped by 1.3% year-on-year.
Latvian exporters have reacted differently to the situation resulting from the problems that involve the falling Russian rouble and weak economy: some are actively looking for new markets, e.g. “Rīgas Piena kombināts” of the “Food Union” group hopes to begin exporting milk and ice-cream to China as early as March; the businesses that raise cattle for meat also are planning to begin exports to the countries of Central Asia and the United Arab Emirates. Other exporters are tightening their belts and continue working, albeit at a loss, and are waiting for the situation to normalize. Still others, for example, "Ventspils Zivju konservu kombināts," have adopted a wait-and-see attitude cutting their production to a minimum or, like SIA "Nordic Plast" and SIA "Polipaks NT," are using this lull to modernize and build new production facilities. There are companies that are investing in new production lines, e.g., Latvia’s greatest candy producer, "Laima," is planning to purchase new production lines for over three million euro. Even though many fish processing enterprises admit that the rouble exchange rate crisis in Russia has harmed them considerably, but that these economic difficulties in Europe also open up new opportunities for fish product exports: for instance, Scandinavian producers as well as those of other countries where production costs are high are looking for opportunities to replace costly brands in canned fish with alternative and cheaper products. That provides an opening for Latvian fish industry to expand in the Western markets.
These processes help to maintain overall good projections regarding export volumes in 2015 as well. There are many different niches in the world in which our producers may find it possible to compete and in which we can only increase our export capability. Intensive expansion into new export markets can be expected in the near future, which will help to increase export volumes to Europe, the Middle East, the United States and, more than up to now, concentrate on the markets in Asia. Even though a rapid rise in exports against the current level is not expected in 2015, the efforts of Latvian exporters to diversify their goods and export supplies as well as increase their market shares will help them to maintain what has already been achieved and will prevent the drop in export amounts.