In January 2016 in comparison with the same month of the year 2015 the volumes of Latvian export appeared lower by 10.9%, but import – by 12.2%.
Of course, Latvian export is still exposed to the landslide of export prices because of cheaper raw materials. Thus, for example, Brent oil price in euro in January was at the average 26% lower than a year earlier. Prices of food and metals also passed through the fall.
Reduction of export to a great extent was affected also by a slump in trade with third countries, where the most important market for Latvia used to be Russia.
Its relative share in Latvian export from 9.7% in December shrank to 5.2% in January. Export of strong alcoholic beverages fell most of all. At the same time a relative share of Russia in import raised to 12.5%, which was largely determined by supplies of natural gas — in January supplies to the Incukalns Underground Gas Storage Facility grow traditionally.
A slump in foreign trade is a red flag, which means that a negative impact of Russia continues making its presence felt and no improvements in the nearest future are expected. Most likely, within a year the situation with Latvian export would stabilize, but you can hardly expect a gain in export.
Among the product group in January the food export (13%, partially thanks to the record grain crop) and woodwork export (1%) were still growing, while a slump was observed in export of machinery and equipment (-28%). Last year export of this product group was growing thanks to re-export of electronics commodities, but lately these volumes, apparently, shrank considerably.
The export slump is the indication that the conditions of economic development this year would pose more serious challenges than last year and the government should brace itself for that in good time. Also changes in the forecast of the Bank of Latvia indicate at the development problems: GDP growth is reduced from 2.7 to 2.3 percent. However, the Ministry of Finance still insists on GDP growth by 2.7%.
As an encouraging factor the news from the EU can be mentioned, where a growth in economics is forecasted. Moreover, yet more cheap money of the European Central Bank, which consistently implements a quantitative easing programme, can improve sentiments of undertakers and consumers.
There is a hope that economic recession in Russia this year would change, if even though not to growth, but at least to stabilization. But the questions concerning forecasts of economic relations between Latvia and RF should be put to the politicians rather than to the economists.