Latvian merchandise trade deficit widens by 72.9% y/y in June

The merchandise trade deficit continued to widen in June, reaching EUR310.1m, according to data released by the stat office on Wednesday. Export growth accelerated to 13.1% y/y from 9.9% y/y in May, driven by growing external demand both within the EU and in light of the economic recovery in non-EU key trading markets such as Russia and the CIS countries. Meanwhile, import growth quickened to 23.9% y/y from 11.3% y/y in May, underpinned by strengthening household consumption and investment activity. In our opinion, the global increase of food and oil prices is likely to have exerted some upward pressure on both imports and exports. In 12-m rolling terms, the trade balance came in at EUR2.2bn, up from EUR1.9bn in June 2016. The trade deficit in Q2 stood at EUR681.3m compared to EUR556.7m in Q1, which implies that the negative contribution of net exports to GDP growth increased in Q2.

On the export side, the increase was primarily attributed to metals, the exports of which rose by 41.7% y/y, followed by live animals and animal products (up by 28.6% y/y) and prepared foodstuffs, which increased by 25.7% y/y. Exports of machinery and wood also grew – by 13.7% y/y and 5.0% y/y, respectively. On the import side, the growth is driven by an increase of base metal products, up by 42.4% y/y, followed by foodstuffs, for which imports rose by 33.7% y/y. Upward pressure was also exerted by chemical products (up by 25.9% y/y), mineral products (19.2% y/y) and machinery (up by 12.2% y/y).

The EU remains Latvia’s key trading partner with 70.0% of total Latvian exports directed towards the EU member states and 75.8% of imports coming from EU member states, which in comparison to June 2016 marks an increase of 6.1% y/y and 16.0% y/y, respectively. During the month, Latvia exported the most to Lithuania (16.8 %), Estonia (11.5 %), Germany (6.9 %) and Sweden (6.6 %), while on the import side the most important trading partners were Lithuania (19.5 %), Germany (10.6 %), Poland (9.1 %) and Estonia (7.3 %). Regarding trade with third countries, Russia remains Latvia’s key trading partners with its share in the total Latvian exports at 9.0%, whereas in imports it accounted for 6.3% of the total. In addition, overall exports to CIS countries grew by 17.4% y/y, while imports increased by 19.0% y/y.

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