One-off effects behind export growth in 2013

In 2013, the external trade balance of Latvian goods improved. Behind this improvement were several Latvian industrial branches whose output production found external markets and which could compete also in conditions of weak external demand. Goods export growth in 2013 was thus 1.5%. On the other hand, despite growing domestic consumption, import dropped 0.2% because of decreased investment activity.

Albeit last year's growth is small compared to post-crisis rapid goods export growth by 15-30% per annum, we should keep in mind that 2013 brought both the negative impact of halting "Liepājas metalurgs" operations on export value and the high base resulting from the 2012 record-high harvest as a reference for plant product exports in 2013, which were in fact good compared to some other years. In addition, many other export groups, includingthe structurally large groups – wood and wood products, foodstuffs, mechanisms -, demonstrated successful development also in 2013. Excluding those goods export groups that were substantially impacted by one-off effects, i.e. exports of metals and plant based products, there was an 8% growth in goods exports in 2013.

The slowdown in investment activity as a result of completing a great investment product and because of an unreliable external environment, the drop in oil prices as well as the impact of "Liepājas metalurgs" on the drop of intermediate consumer goods imports are the main reasons why no import growth was observed in 2013 (in previous years, it was similar to the rapid export growth).

At the beginning of the current year, the confidence indicators or euro area businesses and consumers point to stronger signs of economic recovery. The economic sentiment indicator (ESI), which, starting December, had been above the long-term average, continued to improve in January. At the same time, the Purchasing Managers Index (PMI) has been hovering above the 50 mark (reflecting growth) for the last seven months and demonstrated substantial improvement in January.

In its January publication, the International Monetary Fund (IMF) improved the euro area economic development for the years 2014-2015, predicting 1.0-1.4% growth in 2013. Faster than average growth is expected in our most important the trading partners in the euro area – in Estonia and Germany. The chances for development in Russia are less than favourable (IMF reduced its growth predictions for 2014-2015). Yet Latvian goods exports market shares grew in 2013 when Russian economy already registered weak growth, indicating that Latvian producers can compete even under conditions of weaker demand.

It is expected that the increased good exports growth predicted for 2014 (above 5%)will be ensured by a combination of several factors – (1) an increase in external demand in several export markets, (2) the sustained ability of Latvian producers to compete in markets where the demand is weak, (3) as well as the expected increase in investment activity that will ensure production opportunities under conditions of growing external demand.