In the first quarter of 2015, the current account deficit was 23.5 mil. euro

In the first quarter of 2015, the current account deficit was 23.5 mil. euro (0.4% of GDP). The quarter-on-quarter improvement (-1.4% of GDP in the fourth quarter of 2014) was primarily determined by the decrease in the negative balance of the primary income account that was related to the inflows of European Union (EU) fund subsidies.

In the first quarter, the goods external trade deficit was 524.4 mil. euro (541.4 mil. euro in the fourth quarter of 2014), and its quarter-on-quarter contraction can be explained by a drop in goods import that was faster than goods export. Comparing the quarter data as percentage of GDP, in the first quarter of 2015, the goods external trade deficit was 9.5% of GDP, whereas in the previous period it was 8.4% of GDP. The greater deficit at the beginning of this year can be explained by a slower GDP growth. In the first quarter of 2015, the positive balance of   services (418.0 mil. euro) dropped by 32.6 mil. euro quarter-on-quarter. The drop mainly resulted from the decrease in construction services abroad and the decrease in personal trips or expenditure of foreign travellers in Latvia related to seasonal factors. The balance of transport services slightly improved quarter-on-quarter, primarily due to transport by sea and cargo transport by rail.

In the first quarter of 2015, the balance of  primary income account became positive, reaching 105.5 mil. euro or 1.9% of GDP, which was due to the inflows of subsidies of EU funds.  

In the first quarter of 2015, the balance of secondary income account became negative, reaching 22.6 mil. euro or 0.4% of GDP. The fluctuations in some of the monthly indicators resulted from the diminishing of EU fund inflows, payments to the EU budget of the own EU resources of value added tax and gross national income and the drop in incoming personal transfers.

In the first quarter of 2015, Latvia continued to actively master EU funds and, as a result, the positive balance of capital account reached 183.7 mil. euro or 3.3% of GDP (in the fourth quarter of 2014 it was 133 mil. euro or 2.1% of GDP).

The financial account balance became positive in the first quarter of 2015, reaching 27.8 mil. euro or 0.5% of GDP. In this period, foreign direct investment flowed into Latvia in the amount of 215.7 mil. euro or 3.9% of GDP. In the first quarter of this year, the European Central Bank (ECB) began the Expanded Asset Purchase Programme (EAPP), under which, the central bank of Latvia purchased Latvian national securities and those of euro area international organizations in the amount of 190.3 million euro. The current ECB monetary policy could act as an indirect stimulus to the aggregate economies of the euro area and, as they strengthen, bolster Latvia's exports to them.

Chart. The main components of current account, % of GDP

Source: Latvijas Banka Statistical Database