Risks for an impact of the geopolitical situation on the exports of Latvian goods on the rise

In June 2014, the export value of goods dropped by 3.8% month-on-month, but the import value by 0.2%. Year-on-year, the export value of goods has dropped by 0.7%, and the goods import value has increased by 2.1%. In the first half of 2014, exports grew by 1.6% and imports shrank by 8.2% year-on-year.

Albeit in June exports to Russia increased month-on-month, in the first six months it dropped by 6.5% or 32.9 mil. euro year-on-year. For a fourth consecutive month, exports to Russia are proceeding at a slower annual rate, which is mostly the result of dropping economic activity in Russia. The greatest export drops are observed in the exports of strong alcoholic beverages, medicines and plants. The exports of molasses and wood-chip boards, however, increased rapidly.

According to the operational information of the World Trade Organization, in the first five months of this year, the Latvian export market shares in global imports continued to grow. That suggests Latvia's ability to flexibly react to a drop in the demand in some groups of goods and some countries. According to the confidence indicators published by the European Commission, the Latvian business confidence indicators for the evaluation of export order amounts increased in July. Confidence indicators for the third quarter improved for the evaluation of export order amounts, but the outlook on competitiveness deteriorated within the EU, outside of the EU and in the domestic market alike.  

The 0.2% drop in goods imports in June (compared to May) primarily resulted from the drop in the imports of the products of chemical industry and related industries, products of animal origin and transport vehicles.

Albeit the economic situation has improved in the euro area countries, external risks are on the rise in connection with the impact of the geopolitical situation involving Russia and Ukraine on the exports of our goods. The unstable situation has persisted and mutual economic sanctions are now in place. Some enterprises with markets in Russia and Ukraine are already facing and will continue to face exchange rate related loss and a drop in external demand. The drop in exports to Russia is currently being partly compensated by a rise in demand in other trading partners. Yet it must be kept in mind that Russia has placed a total embargo on beef, pork, fruit, vegetables, poultry, fish, cheese, milk and dairy products imported from the EU, USA and other Western countries. The embargoed goods make up about 5% of total Latvian exports to Russia or 0.5% of total Latvian exports. Even though dairy and fish products have been included in the list of banned food products, which constitute an important part of Latvian exports to Russia, some products, e.g., sprats and ice-cream whose exports to Russia have increased substantially in recent months. Nor are beverages and pharmaceuticals part of the list. We must also note that this is hardly the first time Latvian businesses, particularly food industry enterprises, are facing limitations from the Russian side, therefore they are experienced in trying to acquire presence in alternative markets.