Latvia's foreign trade activity on the rise

In May 2011, Latvia's activity in the foreign trade of goods was once again on the rise compared to April. Both exports and imports volumes of goods rose month-on-month, and the annual growth rates remained high at 38.8% for exports and 32.7% for imports over a year.  

In breakdown by group of goods, exports kept to previous trends, with the exports of wood pulp, metals and their products, vehicles, mechanisms and electrical appliances growing at the fastest rates. Export volumes increased 8.5% month-on-month. Latvia's most significant export partners were Lithuania, Estonia, Russia, Germany, and Sweden.

The EC published confidence indicators point to a slight improvement in the evaluation of export order amounts in June, whereas the overall confidence indicators regarding manufacturing have been falling for three consecutive months. Similar trends have been observed also elsewhere in Europe. The euro area Business Climate Indicator (BCI) also continued dropping for a fourth consecutive month. Even though in June this indicator was still rather high, the BCI drop is a reflection of the negative outlook of manufacturers regarding export orders and diminished expectations of employment, which is a gradual indication of weakened external demand.

Imports grew 11.2% over April. The goods imports growth is primarily related to the growth of export-oriented manufacturing industries, for it was mostly the intermediate consumption goods that experienced growth, e.g., mineral products, ferrous metals and their products, mechanisms, and electrical appliances.  Albeit a gradual improvement has been observed in the Latvian labour market, the uncertain political situation as well as lack of clarity regarding the consolidation of next year's budget, domestic consumption remains at a low level impeding any rapid commodities growth. The increase in the imports of food industry products was determined by an increased inflow of alcoholic and non-alcoholic beverages and tobacco products that may be related to the expected raising of the excise tax. The most important import partners were Lithuania, Germany, Russia, Poland, and Estonia.

Global developments as well as industry confidence indicators point to a possible drop in external demand, and it can be predicted that in the second half of the year the rate of annual export growth will continue to drop, partially as a result of the base effect. Given that production growth is retained in the largest export goods industries, exports will continue to grow but growth in the long term will depend on further improvements in competitiveness and conquering of new export markets in addition to increased market shares in the most important trading partners. In order to increase export goods production capacities and volumes, investment is needed; without it Latvian growth prospects may diminish. In order to stimulate potential investors to invest in new projects or increasing the production capacities of existing enterprises, the expected budget consolidation will be of utmost importance as will the related decisions regarding taxation, improvement of the business environment and the situation in education and employment.