A new export volume record

The foreign trade data for August indicate a rise in export volumes, reaching a new export volume record. Over a month, goods exports grew13.4% while imports shrank by 1.1%.

Differences in the annual growth rate of Latvian goods exports and imports were determined both by seasonality and base effect. Goods exports have climbed 27.0% over a year. As evidenced by manufacturing data, positive indicators were observed in the production of metal products, electronic equipment, non-metal mineral products, textiles as well as wood and wood pulp, and the positive contribution of these branches dominated the annual growth of goods exports.

In August, exports grew in almost all Latvian export goods groups. Growth was fastest in the exports of agricultural goods (seasonality), textile materials and products, mineral products, metal products as well as electrical appliances and electronic equipment. A negative trend has been set by the three-month-long drop in pharmaceuticals exports. A positive development has been the expansion of Latvian entrepreneur exports markets not only on the account of the main groups of export goods but also because the export structure has become more complicated: new groups of commodities have appeared and the small ones have expanded. E.g., in the exports of mechanisms and electronic equipment, the proportion of telephones and other data transmission and reception appliances has increased (in 2010, it was 5.7% of the exports of this group whereas in the first seven months of this year, that percentage grew to 11%); the proportion of mineral fertilizers in chemical exports has grown from 2.2% in 2010. to 5% this year.

The drop in goods imports compared to July was primarily the result of the drop in the imports of mechanisms and mechanical equipment, which cannot be considered a trend since a 53 mil. lats increase in the imports in July was on account of a purchase of turbines (a one-off effect). The annual rise in goods imports by 19.9% points to a rather high business activity, since under the conditions of weak consumption the rise in goods imports is primarily directed by a rise in intermediate consumption and capital goods, with the imports of mechanisms growing most rapidly.

Albeit the situation in Latvia's main trading partners is better than in Europe overall, concern about the deterioration of the external environment, including the weakening of the economies of Latvia's main partners and the drop in new orders, may have a negative effect on Latvia's industrial and export growth at the end of this year and next year. A drop-off in the activity in the external environment is likely to be felt by the Latvian economy as early as the fourth quarter because for now, the already signed supply contracts and investment projects underway are ensuring positive economic growth. With regard to drafting the budget, the protracted government coalition building negotiations do not give rise to much optimism. A timely and quality 2012 budget will play a major role in ensuring continued confidence in the national economy and in asserting the opportunities of a stable and safe business environment to potential investors. In continuing with regional reform, it is important to develop and promote the development of export-capable branches even in the remotest areas of Latvia as well as the attraction of potential investors to the high technology production units, which would help to improve the national export structure.

In spite of global developments, Latvian business confidence indicators for the third quarter improved, in contrast to all other EU countries, both in regard to export order volumes and competitiveness evaluations both domestically and in the European Union. That is a clear sign that the exporters are ready to maintain their existing markets even under the conditions of growing competitiveness.