In the first quarter of 2016 the surplus in the current account was 101.0 mil. euro

For the second consecutive quarter, the current account had a surplus in the first quarter of 2016. The 101.0 mil. euro surplus (1.8% of gross domestic product (GDP)), formed primarily as a result of inflows of European Union (EU) funds into the primary income account as well as of the dynamic of the goods account, which continues to be characterized by decreasing imports, which are impacted both by the dropping raw material prices and declining capital goods.

In the first quarter, the deficit in the goods balance was 460.9 mil. euro (8.4% of GDP). Quarter-on-quarter, the Latvian exports and imports of goods in the first quarter dropped by 6.3% and 7.3% respectively. The faster drop in goods imports over exports resulted in an improved goods balance. The groups of goods where the exports drop was the greatest were mechanisms and mechanical devices as well as electrical equipment, mineral products and textile materials and products. The imports continued to shrink as a result of the drop in the prices of mineral products as well as the imports of capital goods in connection with the weak investment environment.

The positive balance of services at 427.9 mil. euro shrank slightly quarter-on-quarter, primarily being impacted by seasonal factors, and reached 7.8% of GDP, yet it improved year-on-year. The improvement resulted from the income secured by those foreign guests who had arrived for purposes of recreation or use of education or health services.

As for the use of health-related services, the greatest increase in the number of visitors was from Ireland, Ukraine, Russia, Germany and Singapore. The countries from which the number of users of education services was the greatest were Germany, Uzbekistan, Sweden and Norway. The greatest increase in the visitors who came to Latvia for recreation was from Lithuania and Estonia, as well as from Sweden, Ukraine and the United Kingdom. A positive contribution to the increase in services exports was made also by telecommunications and IT services. The export of transport services continued to shrink, primarily as a result in the shrinking exports of transport by sea and railroad, for which the increase in the exports of transport by road and air was not sufficient compensation.

In the first quarter of 2016, the inflows of EU funds led to the primary income account turning positive quarter-on-quarter (117.9 mil. euro or 2.2% of GDP), and it increased by 52.8% year-on-year.

The surplus in secondary income account in the first quarter shrank compared to the previous quarter and amounted to 16.2 mil. euro or 0.3% of GDP. The inflow of EU funds remained at the level of the previous quarter and the annual payments into the EU budget for the EU own resources of value added tax and gross national income resulted in a reduced surplus of the secondary income account.

The positive balance of the capital account in the first quarter of 2016 remained unchanged quarter-on-quarter (107.3 mil. euro or 1.96% of GDP), which can also be stated in regard of the inflows of EU funds.  

The amount of the financial assets placed abroad increased slightly faster (1.83 bln. euro) than the inflows of funds into Latvia (1.76 bln. euro). The most significant transactions in the financial account were the investments by the central bank in debt securities (1.1 bln. euro). The increase in assets abroad resulted also from the interbank deposits by credit institutions (609 mil. euro). The most important transactions in the liabilities side of the financial account were the decrease in the government debt securities liabilities with non-residents (26 mil. euro), money flows within the TARGET2 payment system (2.5 bln. euro), the decrease in non-resident deposits with Latvian credit institutions (508 mil. euro), the decrease in the long-term foreign loans to Latvian enterprises (206 mil. euro), and the increase in trade loans received by the private sector (142 mil. euro).

Foreign direct investment in Latvia dropped in the first to 87.5 mil. euro. Investments in equity and in the form of debt instruments increased by 91.6 mil. euro, and this increase was negatively balanced by the reinvested earnings loss in the amount of  179.1 mil. euro, resulting primarily from payments of dividends.