Data compiled by the Central Statistical Bureau of Latvia on foreign trade of goods for June indicates that the value of export goods was EUR 1 463.9 million – 13% less when compared with June 2022. Such a volume of export value of goods is the smallest since September 2021, reminds the Ministry of Finance.
Negative dynamic of exports of goods is observed for the third consecutive month. This means the value of export goods was 4.5% lower in the first half-year than it was a year before. It is expected for the drop to continue in the coming months, Ministry of Finance notes.
The drop in exports in Q2 and following months was influenced by two factors. First of all, there was the drop in prices of raw materials. While in 2022
the surge of prices for raw materials facilitated a rapid growth of export value,
this year this factor will have a downward-facing influence on exports.
Goods with low added value play the biggest role in Latvia’s export structure. This includes wood and wood products, unprocessed food, mineral products.
Prices of these goods on the global market are much lower than they were a year ago. This, on the one hand, reduces consumer prices in Europe in general and Latvia. On the other hand, it also leaves a dampening influence on export value – especially considering the high level reached last year.
The growth rate of the Latvian producer export price index began to slow down already in the middle of last year, but in April and May of this year deflation was recorded, in the amount of 2.7% and 6.2%, respectively, compared to the corresponding month of the previous year.
The other factor that negatively affects the development of exports of Latvian goods and will continue affecting it in the future is weak external demand. According to a flash estimate, European Union’s overall GDP increased by 0.5% in Q2, which is the weakest growth since the beginning of 2021. GDP remained unchanged over the quarter, which also indicates weak economic activity.
The EU market accounts for 70% of sales for Latvia’s exports.
GDP data for Q2 is not yet available for all EU member states. The drops in economic growth of Estonia, Sweden and Germany – which are among the biggest export markets in Europe – is a negative factor.
An assessment of the economic sentiment of businesses and consumers from EU member states shows that it continues to deteriorate. In July of this year, economic sentiment in the EU deteriorated once again in such sectors important for the export of Latvian goods, such as manufacturing and construction. These industries directly affect the export of Latvian timber industry, metalworking, as well as construction materials.
Except agricultural and food products, as well as vehicles, exports in June 2023 have dropped in all product groups. The biggest negative effect on exports in June was caused by the drop in exports of mineral products – by 56% or EUR 106 million when compared with the same month of 2022. It was affected by gas and petrol product re-export drops of 65% and 63% respectively, as well as the 82% drop in exports of electricity to EU member states.
A major drop in exports was also observed for lumber and wooden products as well. The export value of goods in this group went down by 23% or EUR 66 million, which accounts for one-third of the total drop in exports. One negative is that the drop in exports of this group is comprehensive and, aside from Sweden and Finland, the drop is observed in exports to all of the major markets, including the UK, Estonia, Lithuania, Poland, Netherlands and Germany.
At the same time, in June 2023 there was a relatively significant growth observed for agricultural and food products by 5% or EUR 17 million, reducing the negative effect from drops in other export groups. Although growth of this export goods group has slowed when compared with the growth rate recorded in 2022, it remains stable.
But it is nevertheless important to mention that the stability of agricultural and food products is ensured by the high re-export of alcoholic beverages. Additionally, export growth among alcoholic beverages is not diversified –
it is decided by only one market, specifically Russia.
This is why it is difficult to predict the development of exports of agricultural and food products, because the Russian market is subjected to a very large risk.
Cereals play an important role in exports of agricultural and food products. In June exports of various types of grains was 54% or EUR 31 million smaller than a year prior.
Also read: LTV: some 307 Latvian businesses continue exporting goods to Russia