Global growth forecasts warrant caution regarding Latvian export growth
In July 2013, the external trade turnover grew 5.0% month-on-month, this time resulting from an increase in goods imports by 10.7% compared to June. In goods exports, on the other hand, a drop continued for a third consecutive month: by 1.8% compared to June. The goods trade balance thus deteriorated and in July imports exceeded exports by 187.7 mln. lats.
In July, the goods exports value posted a year-on-year drop for the first time in the last three years, i.e. by 2.4%. As was expected, the annual growth was negatively impacted by the drop in the exports of base metals as well as transport vehicles, which could be related to the decline in re-exports. A positive year-on-year growth was maintained in the exports of agricultural products and foodstuffs, as well as the exports of textile products, mechanisms and electrical equipment. A substantial rise, both month-on-month and year-on-year, was posted by the exports of processed dairy products (milk, cream, butter, dairy fat) and honey (exports four times exceeded the average of other months) to Lithuania, Germany and Russia.
A drop compared to June was experienced in the exports of goods by almost all of the main groups of export goods, with the exception of foodstuffs industry goods, mineral products and construction materials, which continued to increase in exports. According to the World Trade Organization data, albeit slightly slower than in the previous year, in the first half of this year the Latvian export market share continued to increase despite unfavourable developments in the global economy and the low total demand in external markets. A year ago, the rise in exports was primarily determined by the rise in external demand and the favourable price dynamics for some groups of products (agricultural products and foodstuffs as well as textile products, construction materials, mechanisms and electrical equipment), whereas this year, the rise in Latvian export market shares is determined by new products, new market niches and an increase in value added for export goods. The data both on exports and manufacturing indicate that it is the exports of the smaller branches that are currently growing more rapidly. Even though the proportion of high technology branches is still not large in exports, a rise in the proportion of high tech products is observed in the exports of Latvian goods – according to "Eurostat" data, to 9.6% of total exports in five months of 2013 (from 7.7% in 2011 and 8.4% in 2012).
The geography of the export market continues to expand. Although the largest Latvian export partners are the countries of the European Union and the neighbouring countries – Estonia, Lithuania and Russia – at the moment, export cooperation is growing more rapidly with Asian, African and Middle Eastern countries.
Even though in July, goods imports rose month-on-month, the import value of goods continued to drop year-on-year – by1.4%. Compared to June, a rise in the imports of consumer goods (foodstuffs, textile products) was observed in July as a result of growing real purchasing power and improved consumer confidence; the imports of intermediate consumption goods (mechanisms and electrical equipment) and capital goods also rose slightly. The rise in the imports of iron and steel products could be related to the imports of rails for the reconstruction of Skrīveri-Krustpils railroad. In the imports of goods, the year-on-year drop was greatest for the imports of transport vehicles. This drop may point also to a drop in re-exports because, for instance in the first six months, the imports of cars has dropped substantially (by approximately 30%) as has exports (by about 40%), which can be partially related to re-exports, without affecting investments.
The downsized predictions regarding global economic growth and worries about the political developments in Syria as well as the slowdown in Russia, makes for caution regarding Latvian goods exports growth in the coming months. Even thought Latvian economic growth is now mostly based on domestic demand and export growth rates are dropping, to ensure sustainable economic growth it is important to maintain and increase export growth, but for that, substantial investment is required. The improvement in European indicators gives rise to a hope that demand will recover in some countries, which could increase investments activity as well.