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Economic diary. Exports reach new heights

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Baltic news, News from Latvia, BNN.LV, BNN-NEWS.COM, BNN-NEWS.RUIn spite of recent geopolitical developments, Latvian producers managed to demonstrate a notable increase in turnover this March: compared to the same period of 2013, export volume increase was 6.1% and reached EUR 855.3 million.

Export growth continues for the second consecutive month this year, as reported by Finance Ministry.

Similar to previous months, the main influence on export growth indexes was provided by food products and agricultural products, as well as wood and its products. On top of that, previous records were beaten by Latvian wood processing industry this March. The industry realized products worth ER 154.2 million, which is nearly EUR 10 million more than the previous achievement.

This March, Latvia sent 11.9% more food products, 25.2% more wood products, 28.7% more construction materials and 18.9% mineral products abroad than it had sent in March 2013.

On the other hand, however, there was a slump in the volume of metal exports: export volume index had reduced 25.8% in March 2014. Experts had previously predicted this outcome. They explain this with the collapse of Liepājas metalurgs. Nevertheless, experts say the effect of this factor will no longer be so severe in the next several months.

Latvia’s balance of foreign trade was disrupted slightly this March: export share had reduced to 44.2% (45.8% in the previous month). Export volume reached a total of EUR 2.3 billion in Q1 2014, which is 2.3% more than that of 2013. Imports declined by 2.6% – down to EUR 2.94 million.

Crisis is no obstacle for business

Data regarding trade relations with Russia and Ukraine require special attention. Indexes show that the negative impact on exporters caused by the conflict in Ukraine was not nearly as dramatic as it was previously expected. In particular, export of goods to Russia was only 1.8% lower in March than it was in the same month of 2013.Q1 2014 demonstrated growth of 4.7%.

Fish processing plants currently experience the biggest problems: marine exports have declined 27% in comparison with Q4 2013. Experts say such a decline is typical as a seasonal sight. It is normal for this sector to decline in Q1.

Another in the list of products at risk is milk and dairy products. Data for Q1 demonstrate much better results for 2014 in comparison with 2013. However, experts explain this with the growth of prices, not growth of volumes. Sales of pharmaceutical products are also on the rise. Exports of textile goods and accessories remained the same in Q1 2014. This March, however, there was a decline of 2%, which was also expected by experts of the industry.

In total, however, exports with Russia reached 9.4%. Imports are said to be 8.7%. Relations with Ukrainian partners are also on the climb – compared with March 2013, exports of Latvian products grew by 22.8% this March.

‘The possible escalation of the Ukrainian crisis remains the highest risk for Latvian exporters, but not as significant as it seemed at the beginning of the conflict. The crisis has entered the phase when actions of involved sides have become lighter. They remain somewhat unpredictable,’ – says DNB bank economist Peteris Strautins.

According to Finance Ministry’s representatives, because export relations with CIS countries are not as bad as it first seemed, the increase of the flow of goods in that direction may be more significant than it was in 2013.

This March, Latvia’s most important export partners were Lithuania (16.1%), Estonia (12.1%), Poland (8.1%) and Germany (6.9%). Latvia’s most important import partners were Lithuania (16.4%), Germany (12.3%) and Estonia (7.8%).

Services have grown more expensive and will continue growing

Latvia’s general price level has grown 0.7%. Prices did not change in the goods segment this April. However, there was a slight increase of prices in the services sector – 2.6%, as it was reported by the Central Statistical Bureau of Latvia.

The biggest increase impact came from the growth of prices of hotel and restaurant services, as well as in the culture and leisure sector. The rise of prices on alcohol and tobacco products also had an impact. A reduction effect was felt following the drop of prices on communications and transport.

According to Swedbank economist Kristille Skruzkalne, price rise caused by the transition to euro in Latvia has become more moderate, growth has been stable these past couple of months. According to preliminary estimates of the European Commission show that price rise remains within acceptable range of 0.2-0.3 percentage points. This allows for the conclusion that inflation effect in Latvia was relatively insignificant and similar to that experienced by other European countries.

According to Finance Ministry’s outlook, further reduction of unemployment and salary growth in Latvia will add a gradual effect on service costs and inflation. The effect will like become apparent no sooner than 2015. This is why the ministry keeps its outlook for annual inflation rather low – 1.1%. In 2015, on the other hand, it is expected that this index will reach 3%.

Analysts note similar trends are noted in practically all EU member states: low but gradually growing inflation with insignificant impact on production prices and services, which is compensated by a drop on non-food products.

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