The current account deficit of Latvia’s balance of payments in the first half of this year amounted to 883 million euros, which is 4.6% of the gross domestic product (GDP), according to the information released by the Bank of Latvia. Among them, in the second quarter of this year, the current account deficit was 416 million euros, which is 4.1% of GDP.
The economist of the Bank of Latvia, Matīss Mirošnikovs, stated that the current account of the balance of payments is normalizing – the deficit in the second quarter of 2023 was 4.1% of GDP, that is, 416 million euros more was paid for transactions to residents of other countries than was received in the Latvian economy.
He also noted that the current account deficit of the balance of payments in the second quarter of this year was smaller than in the first quarter and smaller than that seen in the second quarters of previous years.
“The interest rates raised in the fight against high inflation continue to slow down the European economies, thus the Eurozone economy has stagnated in the first half of this year. Among Latvia’s largest trading partner countries, the weak performance of Germany and Sweden is worth noting, which has significantly reduced the demand for Latvian goods,” stated Mirošnikovs.
He also informed that the drop in demand in the world market has brought with it a drop in prices for various goods and raw materials, which, although it has not yet been fully observed on store shelves, is already visible in foreign trade statistics.
In the second quarter of this year, the value of export of goods has experienced a significant drop compared to the previous year, decreasing by more than a tenth, Miroshnikovs noted, adding that the entire drop in value is at the expense of real volumes – during the year, export prices have decreased by 5%, a nine-month recession. stopping in June this year, respectively, slightly more than half of the changes can be explained by the drop in actual volumes.
He explained that the drop in the value of export of goods was mainly made up of two groups of goods, which in 2022 experienced unprecedented heights in terms of prices and volumes – wood products and mineral products, including natural gas, oil products and also electricity. Both groups of goods have much lower prices this year – timber has a lower demand due to the slowing down of construction in trade partner countries, meanwhile, the situation in energy has improved a lot this year compared to the huge uncertainty last year.
On the other hand, the increase is only in certain categories of goods, for example food products – the export of alcoholic beverages has increased significantly, because the trade of these goods with Russia is still very active, said the economist of the Bank of Latvia.
Mirošnikovs added that there is also a drop in value in the import of goods, although it is a little less rapid than in the export. The decline was also mainly determined by the trade of mineral products, wood, also various metals and their products.
“In general, we can rather talk about a return to more usual levels – supply chain disruptions during the pandemic and the huge demand started to subside only at the end of last year. Also, international sanctions on the import of various materials from Russia and Belarus came into force in July of last year. Currently, wood, metal from these countries , the import of natural gas and other goods is no longer possible, while a year ago it was still the last moment to do so. Therefore, rather than a big drop, we are retreating from the atypically high value of a year ago and returning to more normal conditions, price levels and demand,” explained Miroshnikov.
On the other hand, the trends in the export of services in the second quarter of the year were determined by the growth of air transport services and trips, Mirošnikovs expressed, allowing for the possibility that foreign tourists look at trips in our region more positively than a year ago. For example, the world hockey championship in Riga in May also helped. Consequently, the number of passengers served at the “Riga” airport continues to grow, and “airBaltic” has also achieved good indicators.
According to him, professional, managerial and other economic services also continue to grow. On the other hand, among the transport sectors, railway and road transport are doing worse, reflecting the drop in Russian cargo. During the year, the import of services grew slightly faster than the export. Import value of various economic services is still high, tourism activity to foreign countries has also increased, as the import value of air transport and trips has grown. “Of course, a part of the increase is the increase in costs, however, compared to a year ago, uncertainty about the geopolitical situation in the region has slightly decreased,” added the economist of the Bank of Latvia.
At the same time, foreign direct investments in the second quarter of 2023 reached 3.9% of GDP. By far the majority of investments were made in professional, scientific and technical services, financial and insurance activities and manufacturing industry.
“Direct investment inflows can be assessed as relatively high, as the outflow of Russian investments continues (approximately 1.3% of GDP in the second quarter), accordingly, the investment activity of other countries more than compensates for this investment loss,” Mirošnikov emphasized.
2023-09-01 10:44:39
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