Latvian current account in May in the pluses
In May 2012 a surplus of 14.5 mil. lats formed in Latvia's current account. The month was successful both for the exporters of goods and providers of services.
The external trade turnover grew in May. The low oil prices promoted a slower rise in the value of imports but the exports of various goods increased substantially. The rise in exports was therefore more rapid than in imports. The negative balance in the external trade of goods improved dropping to 130.6 mil. lats.
After the small drop in April, the balance of the external trade of services increased to 89.4 mil. lats. Under the impact of seasonal factors, the value of travel services increased in May. The value of transport services provided by rail, sea and air also grew month-on-month. Growth in the export of road transport services may be limited in the future by stricter requirements and checking of permits in transports to Russia, which drive up the costs of this transportation.
The negative balance in the income account was very small in May (2.8 mil. lats), while current transfers grew to 58.5 mil. lats, since subsidy inflows from the European Union (EU) were substantial in May (45.3 mil. lats).
The financial account in May was negative (74.8 mil. lats). That resulted from a drop in long-term interbank deposits and liabilities, with the short-term deposits from the non-financial sector flowing out. In this period, the short-term interbank deposits were up, however, and the inflows of direct investments were still significant, at 34.0 mil. lats. The Standard & Poor's international ratings agency improved Latvia's evaluation in terms of long-term and short-term liabilities in the local and foreign currencies, which indicates that Latvia could remain an attractive choice for investors compared to other regions.
A small negative balance (0.3 mil. lats) formed in the capital account in May. However, since the payments from EU funds suspended in January have resumed, it can be expected that in the coming months the inflows of funds in the capital account will be more substantial as both the delayed and new payments are received.
The current data indicate that Latvia has managed to retain stable growth and export market shares even at a time when uncertainty reigns in some European countries regarding future development. It can therefore be expected that in the coming months as well as in 2012 overall, the negative balance in Latvia's current account will remain small.