Services granted to foreigners in end-2011 balance the current account
In December 2011, the Latvian current account surplus increased to 43.8 mil. lats. Even though at the end of the year a substantial reduction in the activity of goods external trade and goods exports dropped to a notable degree (as did, albeit slightly, imports), a positive contribution to the balance was an increase in the value of services granted to foreigners. The changes in the current account were additionally affected also by an increase in the income account resulting from losses of foreign investors in this period.
The total negative balance of goods foreign trade increased to 129.7 mil. lats in December, whereas the positive balance of services foreign trade grew to 94.6 mil. lats, primarily as a result of an increase in transport services granted to foreigners.
An improvement in December was observed also in the current transfers account, whose positive balance increased to 52.0 mil. lats primarily as a result of the financing received from the European Agricultural Guidance and Guarantee Fund.
In the capital and finance account, a slight positive balance was observed (4.7 mil. lats); just as in previous months, reserve assets continued to drop but foreign direct investment in Latvia grew to 60.9 mil. lats, increasing substantially in the own funds of Latvian enterprises (by 111.3 mil. lats), yet the increase was limited by the losses of foreign investors in the form of reinvested profits.
The operational month-by-month data indicate a small overall deficit (about 0.4% of GDP) in the current account in 2011, which is close to the level forecast by the Bank of Latvia. Such changes in the current account were impacted both by some large purchases of investment goods and the fact that after the rapid growth in exports at the beginning of the year slowdown trends in the global economy were already emerging at the end of the year. Judging from the development of the situation, the current account in 2012 could also remain close to balanced with just a slight deficit.