Latvian foreign trade sees a decline
Shortly after the economic crisis, exports started to grow at a fast rate and became a driving force of Latvia’s economic growth, but the growth subsided soon and even turned into a slight decrease in 2016. On the whole, last year was negative for Latvia’s foreign trade as export volumes decreased by 0.3% and import volumes contracted a bit more, by 1.7%. Economists were fairly optimistic about prospects for Latvia’s foreign trade growth last year, but this year there are objective conditions for improving these results.
Imports decline at a faster pace
Last year, Latvia exported EUR 10.332 billion worth of goods, which was a 0.3% or EUR 30.9 million reduction from 2015, while imports dropped by 1.7% or EUR 212.9 million to EUR 12.279 billion. Latvia’s overall foreign trade turnover was worth EUR 22.61 billion at current prices, down 1.1% or EUR 243.8 million from 2015.
On the whole, last year was quite challenging for Latvian exporters as commodity prices declined, the Russian ruble and the British pound sterling dropped in value and exports of some re-export-related categories of goods slowed. All these aforementioned factors impeded Latvia’s export growth in 2016. Still, the value of Latvian exports in 2016 remained virtually unchanged from 2015, declining by mere 0.3%.
Significant drop in exports of goods to Lithuania
A 5.2% percent reduction in export of goods to Lithuania, mainly because of a decreased re-export of mineral products, left the strongest negative impact on Latvia’s export dynamic last year. Exports of goods to Russia fell for the second consecutive year – last year it contracted by 5.9%, showing a decline in all categories of goods. As a result, Russia’s share in Latvia’s total exports of goods decreased to 7.9%.
Exports to other CIS countries dropped by 3.5% last year. This reduction, however, was compensated by increased food sales in Germany, growing sales of construction materials, timber and wooden articles in Sweden, deliveries of iron and steel products to Denmark, as well as sales of transport vehicles and timber in Estonia. Despite the fast drop of the British pound sterling after the Brexit referendum in June 2016, export of goods to Britain grew by 9.9%, with this growth accelerating in the second half of 2016 thanks to increased exports of timber and wooden articles.
Import drop improves foreign trade balance
In 2016, the value of Latvian imports dropped by 1.7% from a year before. Since imports declined at a faster pace than exports, it had a positive effect on Latvia’s foreign trade balance, reducing the trade gap by EUR 182.1 million to the smallest figure in six years.
Bank of Latvia experts indicated that Latvia’s imports of goods continued to stagnate for the fourth straight year in 2016. Although weaker import growth continued to improve Latvia’s foreign trade balance, the import drop has been brought about by slow export growth, weak investment activity and a low oil price.
* In 2017, export volumes are expected to grow. This growth will be driven by external demand, judging by the strong export growth shown by Latvian manufacturing enterprises during the last months of 2016 and improving business confidence indicators in the EU in general.
* The negative effect from the drop in the oil price on mineral product exports is going to decrease. In the first 11 months of 2016, the exports of mineral products fell by 28.4% on average, but a 13.2% rise was recorded in December of last year, which was the steepest increase since April 2014. As the oil price on global markets has been stabilizing in recent months, the negative impact of the price drop on mineral product exports has been easing.
* This year, efforts will continue to find new sales markets, which should compensate for the negative effects of Russian sanctions and the weakened demand.
* Post-Brexit uncertainties will continue, even though no there was no immediate decline in trade with the UK after the referendum. There is still little clarity about the steps the UK is going to take as it prepares for the exit from the EU.
* The possible protectionism of other countries may restrict Latvia’s export growth. The Latvian companies have to focus on boosting productivity, investing in more up-to-date equipment and raising the qualification of their staff.