Latvia is among EU leaders in export growth

Despite the unfavourable developments in the global economy and the low total demand in the external markets, Latvian external trade activity grew substantially in 2012, exceeding even the most optimistic predictions. Owing to the improved competitiveness achieved by Latvian entrepreneurs in the economic renewal period of the previous three years, the increase in the exports of Latvian goods was more rapid year-on-year (15.0%) than imports (12.7%).

After increasing for five months and reaching a record high in export value, the slowing down in the annual rate of growth (9.8%) in December resulted from a drop in goods exports month-on-month determined by a weakening of demand in external markets, worsening of trade conditions and seasonality that brought about both the drop in the export and import external trade in plant derived  products after the previous increase of three consecutive month and a shrinkage in the export of construction materials. 

For a second year running, the exports of Latvian goods registered one of the most rapid increase in the European Union (EU), ensuring for Latvia even a 2012 leadership position among the EU27 countries. The improvement in exporter competitiveness was underpinned by the diversification of production and markets, a rise in productivity and an increase in producer value added. In the exports of Latvian goods there has been a gradual increase in the proportion of hi-tech products: according to "Eurostat" data, up to 7.2% of all exports in 11 months of 2012  (from 6.5% in 2011). In 2012 overall, the greatest contribution in the annual growth of goods exports was made by agricultural and food products (10.0 percentage points - pp), mechanical devices and electrical equipment (3.2 pp) as well as base metals and their products (1.6 pp). In the 2012 increase in goods exports, the increase in the physical volume of goods has been most significant in almost all groups of goods while the impact of prices has abated with the exception of exports of plant-derived products, which, owing to price rises on grain in the global market fostered a rapid increase in the exports of agricultural products in the last few months of the year.

Up until the middle of the year, the growth in goods exports resulted, to a great extent, by a rise in intermediate consumption goods and investments, because growth in branches of manufacturing, particularly regarding manufacturers of export goods, created an additional demand for imports: raw materials, energy resources and capital goods. Along with the rise in real purchasing power and an improvement in consumer confidence, a moderate growth dynamic has been observed in the imports of consumer goods. Albeit the export-generated income promoted a rise in economic activity domestically, a slowing down in the rate of goods imports growth in the second half of the year was influenced by a drop in investment activity which could be explained by the wait-and-see approach of entrepreneurs regarding the future developments in the external environment.

The confidence indicators published by the European Commission indicate that the evaluation of export order volumes deteriorated slightly, yet the indicators regarding the amounts of export orders in the first quarter of 2013 have improved substantially while the producers’ evaluation of their own competitiveness has worsened domestically as well as within and without the EU: an indication that the exporters are quite aware of the increasing competitiveness.

The income of export branches are unlikely to drop – at least at the beginning of 2013, because production continues to rise precisely in the biggest branches of industry producing export goods. Entrepreneurs have asserted in various surveys and interviews that they are not planning to stop at what they have achieved and are expecting to expand their activity in the foreign markets, moreover predicting increased export volumes. A positive contribution to exports could be made also by the renewed fishing industry which has considered as lacking prospects just a couple of years ago. The fishing businesses that export 90% of their production have not only managed to overcome the crisis but are successfully mastering new export markets and increasing their production capacities.

The statistics of Latvian Investment and Development Agency on future trends in foreign direct investment indicate that several positive decisions have been made regarding investment in metal manufacturing, mechanical engineering, electronics, logistics, food production and other branches. If these projects come to pass, the potential of Latvian exports will continue to stabilize.