Foreign trade results for 2011 good; a tougher year ahead
Latvian foreign trade activity grew substantially in 2011, with the turnover of both goods exports and imports on the rise (28.1% year-on-year and 28.3% year-on-year respectively). In December goods exports dropped 8.2 % and goods imports 1.8% month-on-month. In the last months of the year, the drop in goods trade activity was determined by weakening demand in external markets.
In 2011, the amounts of nominal goods exports exceeded the pre-crisis level substantially and for several months set a number of new export records. Just as the year before, in 2011 as well Latvia was among the European leaders in terms of export growth. Improved competitiveness, the advantageous price cost dynamic and increased external demand, more pronounced at the beginning of the year, allowed Latvian producers to maintain and increase their shares of the export market not only in the most important trading partner markets but also to conquer new niches. Broken down by branch, the Latvian exports have become more diversified and within a year, changes have taken place in the structure of goods exports: the percentage of wood and wood products has gone down but that of metals and metal products has increased. The proportion of mineral products (petroleum oil and oil extracted from bitumen minerals, electrical power and peat) has grown substantially (in 2011, it already reached 8.9% of total exports, increasing almost twofold year-on-year). In 2011, growth was achieved in all of the most important groups of export goods, and the greatest contribution to the annual growth of goods exports was made by mineral products, metals, wood pulp, mechanisms and electronic equipment as well as chemical industry products (primarily pharmaceuticals). In December, a month-on-month drop was experienced in all groups of export groups, except mechanisms and electronic equipment and transport vehicles.
As of mid-2010, import dynamics has been very similar to that of export. In 2011, import growth was primarily determined by the need in export branches for raw materials and investments, with the imports of capital goods and intermediate consumption goods growing more rapidly throughout the year. The Latvian domestic consumption remained at a low level, slowing down the growth of consumer goods imports. In December, the imports of consumer goods either dropped slightly, as was the case with food products, or remained at the previous months' level. Import growth was retained in intermediate consumption goods: mineral products, metals and mechanisms, which could be explained by improvements in the industrial confidence indicator.
The confidence indicators published by the European Commission point to a slight improvement in the evaluation of export order amounts in January, the indicators for the first quarter of 2012 have improved substantially for the evaluation of both export order volumes and competitiveness, which could be related to the relatively advantageous structure of the Latvian export market in breakdown by country: Latvian exports to the problematic euro area countries, Portugal, Ireland, Italy, Spain and Greece, contribute only a fraction (2.6%) of total exports.
Latvian economic development in 2012 will still much depend on export opportunities, therefore the greatest risk for growth is related to the development of global economy, i.e. the detrimental situation in the euro area and the slowdown of global economic growth. Taking into account intensified competitiveness that will be the case in the foreign markets in the conditions of weaker demand, the quality of export goods will play an increasingly important role in Latvian exports and that in turn implies that the proportion of more technologically advanced goods and goods with a higher value added should gradually increase in the structure of Latvian goods exports.