Latvia’s balance of payments current payment account deficit last year was at EUR 1.617 billion, which is equal to 4% of GDP, according to information published by the Bank of Latvia. Last year the current payment account deficit by quarter was at EUR 176 million, which is 1.6% of GDP.
Bank of Latvia economist Matīss Mirošņikovs notes that last year the current payment account returned to a level similar to that of 2021 after a high deficit level in 2022.
“The year 2023 in Europe was a year of stagnancy – a number of trade partners important to Latvia suffered a recession. The slowdown in Germany’s national economy is especially noteworthy. The problems with Estonia’s economy continued as well. There were also weak growth in Sweden and Lithuania. The end of last year, however, does offer a more positive look at 2024 – the turnover of Latvia’s foreign trade went up slightly in Q4 when compared to the previous quarter,” says Mirošņikovs.
He also says that there could be a more rapid economic recovery in Europe this year – inflation dampening will help recover consumers’ purchasing power and the expected drop of interest rates will help investments grow, thereby contributing to external demand.
According to the economist, in Q4 2023 the value of Latvian exported goods went up after a previous fall, which had lasted for four consecutive quarters. Compared to Q3, exports of agricultural products were higher, and exports of lumber also grew slightly. Overall, in the fourth quarter, the export value of most goods was close to or slightly higher than the quarter before.
At the same time, when compared to the end of 2022, exports of goods, according to Mirošņikovs, recovered by one-tenth, and this is mainly thanks to two groups of goods – mineral products (oil, gas and electricity) and wooden products.
“In the case of mineral products, much lower prices are to blame, while exports of wood products have suffered more severely from weak foreign demand,” says the economist of the Bank of Latvia.
Mirošņikovs also says that the value of exported textiles and foodstuffs, including alcohol, has increased.
In 2023, half of the drop in goods exports consisted of mineral products, about a third of the drop was at the expense of wood products, exports of agricultural products were lower by a tenth mainly due to the poor harvest of cereals, while the demand for mechanisms and electrical appliances was more sustained, and food and alcohol exports increased, where the re-export of these goods to Russia still accounts for a significant part, explains the economist.
He notes that imports of goods increased as well. However, import volumes remained significantly below the level observed in 2022, demonstrating a drop by nearly 15%. The lion’s share of import value decline came from mineral products – approximately three-quarters of the drop was due to smaller imports of energy resources.
The drop in other product groups was less pronounced. Nevertheless, the value of imported mechanism, electrical appliances and metals went down by 10%. At the same time, the value of imported food products went up. “In the previous year, the drop in imports was large, mainly at the expense of the already mentioned mineral products – over the past year, the prices of energy resources returned to normal, much lower levels than in 2022. With the entry into force of trade restrictions with Russia, imports of wood and metals were also lower last year. There was, however, an up in imports of various food products and vehicles,” adds Mirošņikovs.
He also reports that service trade developed slightly slower in Q4 2023 than in previous quarters, and this is mostly due to weaker exports of vehicles and IT services. With the active tourist season over, exports of trips was on a lower level as well. Nevertheless, tourism activity continued going up when compared to the end of 2022. There was an especially noteworthy increase of trips of Latvian tourists to foreign countries.
“In general, the year 2023 was not bad for services, the tourism industry continued to maneuver successfully enough in difficult conditions, the export of air transport services increased, however, the telecommunications, computer, information and other economic services that experienced rapid growth in previous years have slowed down somewhat. With the weakening of ties with Russia and the economic environment in Europe not in the best position, car, rail and maritime transport services have suffered a greater negative impact,” mentions Mirošņikovs.
He also reports that the volume of foreign direct investments at the end of 2023 was lower when compared to other quarters. In the last months of the year, the outflow of funds was relatively similar to the amount of investment inflows. This situation was mainly due to the fact that the debt repayment was much higher, while investments in equity capital did not grow so fast.
Generally direct foreign investments into Latvia reached 0.3% of GDP in Q4 2023.
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