Latvian goods exports posts a rise after a three-month decline

In August 2013 the external trade turnover of Latvian goods grew 2.5% month-on-month. Despite weak external demand and the drop in the production growth rate and even production volumes in some branches of manufacturing and problems in metals production, exports of Latvian goods managed to post a 6.6% month-on-month rise after dropping for three consecutive months, whereas the imports of goods dropped only slightly, 0.5% month-on-month.

Over the past few months the overall export dynamic has not been comforting. In August, the drop in the goods export value continued also year-on-year - by 8.2%.

The greatest negative contributor to the overall external trade indicators was the metals branch: in August, the exports of iron and steel dropped by 61.9% year-on-year. A year-on-year growth in exports was also negatively affected by a drop in the exports of land transport vehicles, which, along with the drop in this same group of goods in imports, points to a drop in re-exports. Annual growth suffered also because of a drop in the exports of plant products, as in August of last year, owing to a rise in global prices and good harvest, exports in this group of goods rose substantially.

There is also good news, however. Annual growth was positive and substantial in one of the largest export branches: the exports of wood pulp and its products (by 16.1%). There is reason to think that this branch is undergoing positive change and its value added is rising.  

The growth of the other largest export branches (ordinary metal, mineral products) has contracted substantially, yet parallel to the good indicators of wood and wood pulp exports, the exports of some relatively small branches are posting notable rates of growth. Thus, for instance, the year-on-year rise in the exports of construction products in August was at 11.0%, products of animal origin at 23.3%, products of paper, cardboard and printing and publishing at 3.6%. The exports of optical devices, photo and film cameras, medical and measuring devices are also growing – in August, by 8.1%. Growth continues to be stable in the exports of foodstuffs. In August, only the exports of animal origin and mineral products registered a month-on-month drop in export value.

In August, goods imports dropped both month-on-month and year-on-year.  The year-on-year drop in goods imports was primarily determined by the drop in the imports of intermediate consumption goods and capital goods. The most substantial contraction in imports was observed for mineral products, transport vehicles, mechanisms and electric appliances. In August, no substantial rise was observed in the imports of consumer goods.

Confidence indicators are improving in Western Europe. The more or less sustained growth of such branches as wood and wood pulp exports along with the stabilizing of global wood prices and rise in the European Economic Sentiment Indicator (ESI) in the construction branch, give rise to expectations of resumed construction in Europe, possibly resulting in an increased demand for construction materials, including wood pulp.  That in turn implies a possibility for increased activity in other branches as well.  The growth in wood exports may be positively impacted also by seasonal factors, because, with the heating season approaching, the demand for firewood in the export markets is on the rise, with Western European countries as particularly active consumers.

The slowing down of the contraction in metal imports and the fact that in August, the month-on-month drop in the metals branch stopped suggests improved prospects for the metals branch. Another positive factor is the recovery of the construction market in our main European partners.

The growing external demand may be one of the factors that could stimulate renewed investment in the production sector, which is necessary for raising the export potential,  for the hitherto weak external demand resulted in a wait-and-see attitude on the part of entrepreneurs in carrying out investment projects. In the last few months of the year, a more rapid rise in the imports of consumer goods is possible, stimulated by additional spending activities by the population.