The Year Begins with Current Account Deficit
For Latvia's balance of payments, the year 2012 has begun with a current account deficit which stood at 34.4 million lats in January. The deficit of foreign trade in goods and services has remained broadly unchanged since December, and the negative balance of the current account is primarily due to the profits earned and repatriated by foreign investors as well as to the weaker inflows of current transfers resulting from temporary restrictions imposed on payments from certain EU funds.
As the value of both imports and exports of goods recorded similar month-on-month decreases in January, the deficit of foreign trade in goods remained almost unchanged, at 131.0 million lats. Similar to January dynamics of other years, services exports recorded seasonal contractions (primarily due to the downturn in exports of transportation, travel and other business services), but due to similar trends observed also for services imports, their trade surplus dropped only slightly to 74.6 million lats.
In January, certain payments from the EU funds were temporarily halted. It was reflected in the decreasing inflows into Latvia's current transfers and capital accounts (in January, the deficit in the capital account of Latvia's balance of payments was 0.8 million lats). The data are likely to show the same situation over some time, as no information about the renewal of respective inflows from the EU funds has so far been disseminated.
The persisting stable confidence of foreign investors is a positive feature of this period, for foreign direct investment in Latvia increased by 57.6 million lats and figured as the main driver of the surplus in the amount of 16.7 million lats in the financial account. The outflows of funding, on the other hand, were on account of falling interbank long-term borrowing and growing short-term investment.
At the beginning of the current year, the downgrading of credit ratings of several EU countries went on, which may suggest a further weakening of foreign demand and hence also restricted growth of Latvia's exports; nevertheless, the presence of growth potential is supported by the increasing foreign direct investment in Latvia, including also investment in production.