Analytics, Banks, Direct Speech, Export, Financial Services, GDP, Latvia

International Internet Magazine. Baltic States news & analytics Thursday, 28.03.2024, 21:57

The current account deficit was 37.2 mln euro in Latvia in the 2Q of 2016

Linda Vecgaile economist, Latvijas Banka, www.macroeconomics.lv, 05.09.2016.Print version
In the second quarter of 2016, the current account was at a deficit of 37.2 mln euro (0.6% of gross domestic product (GDP)). This spelled an end to the situation formed in the previous two quarters where the account posted a surplus (1.1% of GDP in the fourth quarter of 2015 and 2.8% in the first quarter of 2016). The forming of the deficit resulted from dividends paid to foreign investors in Latvia. The goods account annual dynamic is still characterized by dropping imports resulting both from a drop in the prices of raw materials and a decrease in capital goods.

In publishing the second quarter data, revisions of data for 2014, 2015 and the first quarter of 2016 were made in accordance with the data revision policy.

In the second quarter of this year, the goods balance deficit was 474.1 mln euro (7.6% of GDP). The export and import of Latvian goods decreased in the second quarter by respectively 1.1% and 3.2% year-on-year.

The potential of goods export is still curtailed by the uneven development of the main trading partners, the drop in export prices and weak external demand, whereas the prolonged stagnation in goods import is related to the dropping of oil prices.

In the goods export, the greatest year-on-year growth in the second quarter was posted by plant-based products (27.1%), construction materials (20.6%), chemicals (13.6%), foodstuffs (14.4%) and wood and wood products (5.2%). The year-on-year growth was unfavourably impacted by the decreased exports of mechanisms and electrical equipment, mineral products, textiles and textile products, base metal products and optical equipment.

Goods imports decrease year-on-year was primarily determined by goods related to re-exports: mineral products, mechanisms and electrical equipment and base metal products.

The positive balance of services, 436.2 mln euro, diminished slightly year-on-year, reaching 7.0% of GDP. The changes in the positive balance resulted from the decrease in rail and sea transport services for non-residents as well as the increase in transport services received abroad.

In the second quarter of 2016, the primary income account turned negative quarter-on-quarter (68.6 mln euro or 1.1% of the projected GDP). This resulted from dividends paid to investors in Latvia.  European Union (EU) funds inflows amounted to 72.7 mln euro (1.2% of GDP; 60.2% less than in the previous quarter), yet at the same level as in the respective period of last year.

The balance of secondary income increased quarter-on-quarter and amounted to 66.2 mln euro or 1.1% of GDP. The inflows of  EU funds remained at the level of the previous quarter, but the annual payments to the EU budget were less the amount of value added tax and gross national product EU own funds and thus determined the increase in the secondary income balance.

The positive balance of the capital account dropped almost by half quarter-on-quarter (to 62.8 mln euro or 1.0% of GDP), resulting from decreased inflows of EU funds.

In the second quarter of 2016, the inflows of finances into Latvia (884.5 mln euro) were smaller than the financial assets deposited abroad (989.2 mln euro). The most important transactions on the asset side of the financial account were the investments by the central bank in debt securities (728.2 mln euro). The most significant transactions on the liabilities side of the financial account were an increase in the government debt securities liabilities to non-residents (585.4 mln euro), money flows within the TARGET2 payment system (1.3 bln. euro) and the drop in non-resident deposits with Latvian credit institutions (764.2 mln euro).

Foreign direct investment in Latvia shrank by 168.6 mln euro. Investments, in the form of debt instruments, grew by 155.1 mln euro. Investments in own capital were negative (323.7 mln euro) primarily because of changes in Swedbank Latvija's equity.

 

 






Search site