Latvia's exports growth predicted to continue

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Latvia's export volumes increased sharply in March. According to the Central Statistical Bureau, the value of goods exports increased by 20.6% compared to a year earlier, reaching EUR 1.34 billion. What are the reasons for the increase in exports and how long will this continue? Latvian Radio spoke to experts May 23.

Producing industry is recovering rapidly around the world, as Covid-19 restrictions are diminishing. Citadele economist Mārtiņš Āboliņš explained that consumer demand has changed due to the supply chain and the pandemic.

"There are no different services available, such as entertainment, tourism, trips, and people choose to spend their funds more on buying different goods. And the second, of course, is the breakdown in production last year, when the Covid-19 crisis began, at the moment, it appears that for many commodities global stocks are lower than normal. Consequently, both the satisfaction of strong demand and the recovery of stocks are taking place at the same time. And the increase in demand will not only lead to an increase in production, but also a rise in prices, and this, of course, appears immediately in our exports," said the economist.

Bank of Latvia economist Guntis Kalniņš said that demand for goods produced in Latvia has increased in the world.

"Wood products, machinery, electrical equipment. Several months have shown continued growth in products from the chemical industry, a large part of which relates to the pharmaceutical sector. The value of exports, of course, is also boosted by rising prices. In these conditions of strong demand, supply has yet to grow and meet growing needs, including wood products and other construction materials. In the U.S. and elsewhere, there is huge demand for the construction and improvement of homes.

"There is, of course, a different story in the services. In Q1 there are no improvements, passenger flights remain limited, which naturally depends on vaccination. We hope some recovery will happen in the second half of the year. But a logical question is how long demand and price growth can continue. Prices have already reached record levels for food products, construction materials, including wood, metals," said Kalniņš.

Bank Citadele economist Āboliņš estimated that export growth will continue this year.

“Half-year, year-on-year growth should continue as the rushing figures on orders signal growth. When most countries will be able to ease the restrictions associated with Covid-19 and the availability of services is restored, we will probably see the structure of services changing. If this year we are upgrading our garden houses and buying electrical appliances, we will not do so much next year. Maybe demand for goods won't fall, but it might not grow so fast. So next year, we could see export growth even slower than the economy's overall growth. The recovery comes with a lot of state support. Latvia's forecast deficit is 9% of GDP this year. At the moment when there will be no state aid, we will see how strong economic growth is," Āboliņš said.

Aigars Rostovskis, president of the Latvian Chamber of Commerce and Industry (LTRK) said that the time after the pandemic will be crucial for companies. Then it will show how competitive Latvian companies are.

"I think then we'll see that picture a little more realistic, because, of course, providing aid very accurately where it's needed is complicated. What the world has realized is that relying on supplies from very distant lands is a certain element of risk. As a result, the customer is prepared to pay more, but so that its supply is more stable.

"These are things to follow. There is no single advice, each industry has its own details and nuances. This is the story of competitiveness: how many Latvian companies and industries will be successful in the global competition. And the other – how smart our politicians will be, helping entrepreneurs and cutting energy costs and labor costs. There is still the issue of the banking sector, lending, opening accounts – such a complex issue. A number of sectors will have some difficulties," the chair of the LTRK acknowledged.

The main export countries of Latvia at the beginning of this year were Lithuania and Estonia, Germany, Sweden and Russia.

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