External trade remained at previous year's level

Despite the low overall demand in the external markets and the complicated geopolitical situation in eastern neighbours, the Latvian external trade turnover in 2014 was close to the level of the previous year: the increase was at 0.8%.

Despite the decreased Russian demand and falling rouble exchange rate, as well as the slow and uneven development in the euro area countries, the exports of Latvian goods in 2014 managed to not only maintain the amounts of 2013 but also posted a rise of 2.2%. Overall in 2014, the greatest positive contribution to the year-on-year growth in goods exports was made by wood and wood products, mechanisms and electric equipment, chemical products, construction materials, foodstuffs, plastic products, optical devices and equipment. The increase of Latvian market shares in global imports is evidence that exporters continue to work intensively on acquiring new markets. Business investments in the development of products with high added value have promoted the continuing increase in the percentage of hi tech products in the exports of Latvian goods also in 2014 – according to Eurostat, these products accounted for 7.7% of all exports in 2011 to 10.2% in 11 months of 2014.

In December, the external trade turnover dropped by 5.4% month-on-month. Within one month, with the exports and imports of goods contracting by 11.2% and 0.4% respectively, the goods trade balance deteriorated and the excess of goods imports over exports grew to 255.6 mil. euro in December. The weak performance of goods exports in December resulted both from the low demand in external markets and seasonality, which impacted both the drop in the external trade of both exports and imports of plant based products and the decrease in the exports of construction materials. In December, exports to Russia contracted by 13.9% (or 14.8 mil. euro) month-on-month, but altogether in 2014, goods exports to Russia dropped by  5.0% (or 57.8 mil. euro) year-on-year.

Confidence indicators published by the European Commission demonstrate that the assessment of the amount of export orders in January remained unchanged but that of the amount of export orders in the first quarter of 2015 has deteriorated; on the other hand, the assessment by producers of their competitiveness has improved not only domestically and in the European Union (EU) but also outside the EU.  That indicates that exporters are capable of mobilizing relatively quickly and improve their position in the export markets.

Goods imports in 2014 continued to stagnate, remaining almost unchanged for a second consecutive year – compared to 2013, there was a drop of  0.4%. On the one hand, the weaker growth of goods imports continued to improve the external trade balance of goods. On the other hand, the contraction of imports is related to a slower growth of exports and weak investment activity.

No fast year-on-year growth is expected in 2015. If stabilization of the economic situation continues in the euro area and the Nordic countries, which are vitally important markets for  Latvian exporters, and work is resumed at "KVV Liepājas metalurgs", they could at least partially compensate for the external risks related to the drop in Russian demand and further escalation of the geopolitical situation between Russia and Ukraine. Diversification of goods and export offer as well as finding new markets will help to maintain production and export amounts. 

In various surveys and interviews, entrepreneurs have asserted that they are expecting to expand their activity in foreign markets even more actively, moreover, projecting increased export amounts. In addition to European countries, exporters see a great export potential in third countries. In 2014, the Latvian export market was supplemented by several exotic countries, for example, Madagascar, Burkina Faso, Morocco, Liberia, Nigeria, Democratic Republic of Congo, Chad and others. Generally, Latvian exporters have good prospects in China as well. Even though China is a distant and difficult market whose penetration may last several months,  exporting to this country may bring good profits and be sustainable, particularly as far as foodstuffs, designer objects and green energy are concerned. This has been borne out by those Latvian businesses that are already cooperating or forming cooperation with Chinese partners, for instance, "Stenders", "Attirance", "Cita Lieta", "Kukuu" designer furniture, "Madara Cosmetics", "Laima", "Nelle Ulla" and other Latvian brands. Media have already reported that some Latvian businesses have announced that they have begun exporting to China; thus, in January of this year, the Latvian grain processing enterprise AS "Rīgas dzirnavnieks" made its first exports to Hong Kong, but, after receiving an export certificate, the dairy producer "Food Union" is planning to begin exporting to China such products as ice cream, cream cheese and butter within the next six months. At the beginning of the year, it was also reported that AS "Brīvais vilnis" had made its first delivery of sprats to China.