On Foreign Trade in July 2009

Shrinking foreign trade in intermediate and capital goods largely reflected weakening global demand. Thus, since capital goods exports do not prevail in Latvia's foreign trade and the sluggish domestic demand has pushed down the imports of machinery and equipment, various materials and raw materials, export dynamics continues to be somewhat more favourable, with its annual rate of decline of 27.2% in the first seven months of the year still markedly lower than that of imports (41.2%). Moreover, some of the major commodity groups, including machinery and mechanical appliances, electrical equipment, contributing altogether 15.5% of exports in July, have been reporting export growth already for two months running. Following a protracted period of downturn and from a very low base, industrial output is also gradually recovering, particularly in production of textiles, wood and paper, computers, electronic equipment and optical instruments.

Though the economic recession has induced more than one country to resort to protectionist measures directed towards encouraging domestic consumption and imposing various barriers to imports, Latvia's competitiveness in foreign markets has nevertheless been progressively improving since April, both price- and cost-wise. This is the result of the stabilisation of the nominal effective exchange rate as well as a steeper price drop than that in the key trade partner economies.

According to the foreign trade data released by the Central Statistical Bureau, both imports and exports of goods recorded a notable year-on-year decline in July. The annual growth rate of imports stood at -46% and that of exports at -32.6%. Despite the deterioration of the foreign trade balance in July as opposed to the continued trend towards improvement observed in the first half of the year, this still does not suggest an overall trend reversal. The major commodity groups responsible for the contraction of exports and imports have remained broadly unchanged. As to imports, the determinant groups were base metals and articles of base metals, transport vehicles, machinery and mineral products, partly on account of prices. With regard to exports, most of decline was due to shrinking output of base metals, articles of wood and products of the chemical industry, as well as contraction of cereal exports by 88.1% or 8.4 times year-on-year - this is most unusual for the season and can be hardly explained by a price drop or less generous harvest.