Foreign trade still positive

In October 2001, exports and imports rose slightly month-on-month: 0.7% and 4.1% respectively. Even though deterioration in Latvia's main export markets is already obvious, the recent developments in the global economy had yet to translate in Latvian foreign trade indexes.

Latvian export volumes posted growth that was among the highest in the European Union. In the first 10 months of 2011, exports in all groups of commodities grew year-on-year. October marked the signs of slowdown in the development of export. In October month-on-month growth was retained only in the exports of mineral products, mechanisms and electronic equipment, metals and their products, food products and wood pulp: in other groups of commodities, export volumes were down. Growing uncertainty in relation to the debt situation in the euro area countries is having a negative impact on Latvia's main export markets, first and foremost, in the EU countries, making their economic activity shrink.

According to the operational information of the World Trade Organization, Latvian market shares in global exports continued to grow in the third quarter, and at a faster pace than those of the other countries that joined the EU at the same time as Latvia. In trade conditions, however a less than positive trend has emerged in the third quarter: with import price rises outpacing export price rises, the overall trade conditions have deteriorated slightly. In breakdown by branch, deterioration has been most pronounced for mineral and paper products (such deterioration has been continuing since the fourth quarter of 2010), whereas the dynamic was still positive in the trade conditions for plant and food products, transport vehicles and wood pulp.

The fourth quarter confidence indicators have deteriorated for the evaluation of both export order amounts and competitiveness. That indicates that producers have a pessimistic outlook for the future and optimism that was observed up to now has fallen in face of the possibility of shrunken future demand and increased competitiveness in foreign markets.

Year-on-year import growth in the first ten months of this year was most substantial in the product groups of raw materials and capital goods, e.g., the annual growth in mineral imports was 53.9% in ten months, in base metal and their product imports 48.7%, in mechanism and electronic equipment imports 33.3.%. Even thought the income generated by exports has promoted increased economic activity domestically and this year imports have grown at a slightly faster pace than exports, the excess of imports over exports is primarily related to the expansion of manufacturing and investment activities. On the one hand, it widens the commodities trade deficit but, on the other, it creates a future opportunity to increase the competitiveness of the production and services sector and growth in the goods and services exports. With the gradual recovery of household consumption, a moderate dynamic is observed in the increase of consumer goods imports. Import volumes in October posted the fastest month-on-month growth for mineral products (18.7 mil. lats) as well as mechanisms and mechanical appliances (par 18.9 mil. lats).

The international organizations have sized down their predictions for global economic growth. Main growth risks are related to the slowdown of the US economic growth and worries about the instability of the financial sector in several countries of the euro area. On the bright side, the majority of the fast growing economies are still posting stable growth, e.g., the Asian countries have overcome the global crisis more successfully than other regions and in most of them the domestic demand is stable. Consequently, in retaining export growth, it will be important to maintain and expand export markets outside the EU, e.g., in Asia where several Latvian businesses have already laid good groundwork.  

A weaker export development next year will reduce the need for the imports of intermediate consumption goods, slowing down the overall growth of goods imports. Rapid resumption of domestic consumption is not predicted and dynamic change in the import growth of consumption goods is therefore not expected.