Latvian exporters continue their good performance

The external trade turnover drop of 4.1% in November did not much change this year’s success story in external trade, since the annual growth rate of Latvian goods exports still remained high: in November, goods exports increased 27.9% year-on-year. As predicted previously, the annual increases in goods exports and imports in 2012 will exceed 10%.

Despite the October and November deterioration in business confidence indicators and the drop in production volumes in the most important branches for export in October, goods exports continued to increase, registering a monthly high in November.

In 11 months of this year goods exports grew 15.4% year-on-year, posting a rise in all groups of goods, except transport vehicles and chemical products.

Looking for an explanation for the good success of our exporters at a time when unfavourable developments are observed in external markets, the answer may be the small size of Latvian market share. Latvian enterprises could be compared to easy to drive small city automobiles which, in the conditions where traffic (competition) in cities (the global market) becomes ever more intense, manage to manoeuvre deftly through the city and its grid and can park in places where it is much more difficult to do so for bigger automobiles (the large market participants). Calculating the export market shares in groups imported by our main export partners, it becomes obvious that the percentage of groups of goods exported by Latvia is tiny: about 0.1% and even less in the imports of main groups of goods (except Estonia and Lithuania). For example, in the imports of Germany where almost one third or 33.2% is constituted by imports of mechanical appliances and transport equipment, the percentage of mechanical appliances from Latvia amounts to only 0.03% of all imports in this group of goods. The supply of Latvian exporters in the common market is small and for that reason much more flexible and easier to reorient.  The ability of Latvian entrepreneurs to find new market niches is also evidenced by the fact that despite various problems encountered by exporters of meat in 2012, in June the cattle growers of Latvia, Lithuania and Estonia signed a contract on high quality beef export to Switzerland. Likewise, the 23.2 million-lats worth exports of wheat and rye to the Iranian market in November testifies to the ability of Latvian entrepreneurs to reorient quickly and find new market niches for the sales or their products.

With the imports of intermediate consumption and consumer goods dropping in November, the annual rise in import value dropped and was at 7.4%. Compared to October, imports of textile products, transport vehicles and mineral products dropped in the overall imports of goods. With domestic consumption remaining at a relatively low level, it still does not exert an important pressure on imports.

Albeit the exports of some groups of goods dropped at the end of the year, production volumes grew in the branches most important to exports and producers do not predict a protracted drop in export volumes. The confidence indicators published by the European Commission likewise indicate that the evaluation of export order volumes has improved somewhat. In 2013, the development of Latvian economy will continue to be closely related to export opportunities, therefore the greatest risk to growth is related to the development of the global economy.  Given that market capacity will not grow rapidly and demand will not improve substantially, competition will increase in the external markets and the proportion of technologically more intense goods and those of higher value added will play an increasingly important role in Latvian exports.