Citadele bank economist: Latvian export reach new record in August

• This August, Latvian goods exports increased by 32.3% and reached EUR 1446.4 million.
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• In August the increase in imports outpaced exports and trade deficits exceeded €500 million.
• During the remaining months of this year and in the first half of next year, Latvia's exports will continue to grow.

Latvian goods export continue to grow sharply, and it has reached a new record in August this year, surpassing €1.4 billion a month for the first time. According to the information published by the Central Statistical Bureau, exports of Latvian goods increased by 32.3 % in August this year, compared to last year and reached EUR 1446.4 million. The strong increase in Latvian goods exports is linked to the still very large global demand for goods, resulting in both industrial production and commodity and raw material prices. However, in August the increase in imports outpaced exports, and compared to August 2020, Latvian goods imports increased by 56.6 %, reaching EUR 1946.8 million. As a result, Latvia's trade balance continues to deteriorate this year and the trade deficit exceeded €500 million in August. This is historically the second highest one-month trade deficit in Latvia.

The increase in exports and imports is seen at present in almost all sectors. In August 2020, compared to August 2020, exports of wood products increased by 72,6 & %, furniture by 34.9 %, metal products by 42.3%; vehicle parts by 37.3% and cereals by 15.4%. Meanwhile, imports in August dominated the supply of Airbaltic planes from the manufacturer, as well as imports of petroleum products, which increased by 2.2 times compared with last year's increase in oil and natural gas prices. While the rapid rise in imports is linked to investment and rising energy prices on global markets, the deterioration of the trade balance in recent months is also a signal that there is a need to be more careful about heating the economy at the expense of budget deficits, as this may contribute to the development of economic imbalances.

Global demand for goods now is very strong, new industrial orders continue to grow and many commodity groups have low inventory levels which further boost demand. The strong demand and limited production capacity are bottlenecks in the global logistics system, as well as local COVID-19 outbreaks in various places around the world mean that a normalization in supply and demand in world trade won't happen before the middle of next year. Therefore, in the remaining months of this year and in the first half of next year, Latvia's exports will continue to grow, and overall export growth could exceed 20% this year. At the same time, the rapid growth of energy resources as well as transport prices worldwide is becoming a major risk to economic growth, as price increases undermine the purchasing power and consumption of citizens. In addition, stocks will gradually be restored as THE COVID-19 pandemic decreases, demand for services will grow faster than for goods, and national economic heating measures will not continue forever. Therefore, following the new year, Latvia's export growth is likely to decrease significantly and will not exceed 10% next year.

Information was prepared by Mārtiņš Āboliņš, Citadele bank economist. Publicity photo.