The structure of Latvian economy has changed significantly after the financial crisis of the late 2000s. It has become more balanced and the reason of this has its roots in the shift of local consumption to exportations. One of the most interesting things about the economy of this Baltic country is the economic growth it experienced after the sharp fall of 2008. Even though Latvia is a small country, compared to some of its neighbors, its growth from 2011 has been so strong, that it has become one of the most dynamically growing economies of the European Union. In terms of economic growth, 2011 statistics cast an amazing result: Latvia reached the first place in the EU. Latvia’s GDP grew by 5.5 percent compared to the prior year, and the average of the Eurozone countries was just 1.5 percent.
Such economic victory has not been an easy task, considering that Latvia’s main competitors also record exportation growths in the same kind of products and services. In first place, Germany, in the vehicle, chemical products and base metal exportations. In second place, China, in the machinery exportation; and Poland, Estonia, Sweden, Finland and Russia in the third place, in wood products. It has made the competition very keen, but it has become a real challenge for Latvian enterprises to find new ways of stand it ground in the European and global markets. It is important to note that, although the adverse developments in Europe’s and the world economy in general, the growth of exportations of this Baltic country has been really fast. In fact, it was the main driver of its economy in the golden year of 2011.
In 2012, economic recession was one of the most frequent topics in the global press. The increase of poverty, inflation and unemployment were (and still are) common elements of the economic landscape. Regardless of the low total demand, and against all predictions, the trade activity of Latvia grew in exponential ways in the external market: actually, the import of goods and services were lower than the exports (12.7 percent compared to 15.0). At the end of that year, the external markets showed a decreased demand, but in the first five months, Latvia reached a record peak. From December 2012 to the first semester of 2013, Latvia´s seasonality and trade conditions had some obstacles that increased the amount of imports, for example, of construction materials.
But on those first five months, Latvia gave important economic lessons to the rest of the EU countries. One of them was how to improve export competitiveness by increasing the value-added producer, the diversification of markets and products and rising productivity. All that with a quite limited rank of goods and services that have been expanding since then. In 2012, despite the export of hi-tech products experienced a gradual increase (from 6.5 percent in 2011 to 7.2 in 2012), in general, the most substantial contribution in the grow of export of goods was made by base metals (and mining products), electrical equipment, mechanical devices, food and agricultural goods.
In 2013, the Baltic country showed a good adapting capacity to the constant changes of the market. The evaluation of export order volumes suffered from a slight weakening, as it was published by the European Commission in its confidence indicators. However, the amount of Latvia’s export orders had a considerable improvement in the first three months of the year. Simultaneously, there was a worsening of the evaluation of producers about their own competitiveness in local markets in Latvia and the rest of the Eurozone.
Despite the fact that at the beginning of 2013 the income of export branches had a drop tendency at the beginning, Latvian entrepreneurs stated that they even wanted to expand their activities in the external markets and predicted an increase of export volumes. And the truth is that production continued an increase rate in the biggest branches of the Latvian industry. The fishing business also made its points: it made a helpful contribution to Latvian exports. Nobody could see any good prospects of the fishing industry, but it managed the export of the 90 percent of its production and opened new markets on that period.
In 2014, though a series of economic sanctions were imposed, the total export of Latvian goods expanded by 2.3 percent. It’s important to note that Russia’s export of goods decreased by 5.6 percent, because of the export expansion of the US, the UK, Lithuania and Denmark. In the first five months of 2014, the situation was quite the same than last year: the export growth had a high peak and it declined a bit to December.
Last year, Latvia experienced an export growth of 2.0 percent y-o-y from January to May. The major increase of exports was in building materials, electrical equipment, timber, machinery, plastic, chemical products and wood furniture. And the tendency from 2015 to 2016 has been positive too. On May 2016, good results are also expected. It depends on good decisions about foreign investment, especially in the metal manufacturing, electronics, logistics and mining productions, in order to reach new markets abroad.