Banks, Economics, Financial Services, Latvia

In line with the forecasts, the surplus in the current account of Latvia's balance of payments contracted on account of a considerable decline in losses incurred by foreign direct investment companies, the central bank said.

On the other hand, the balance of trade of goods and services improved and was positive – 1.2% of GDP, writes LETA.

On the backdrop of the gradual recovery of the economic growth in Latvia's major trade partners, exports of goods expanded, thereby promoting a rise in export value of transportation services, with exports of freight transportation by road posting the highest pickup. Moreover, export value of passenger transportation by air, financial services and other business activities also increased, providing a considerable contribution to the positive trade balance of services.

Positive quarter-on-quarter and year-on-year changes in exports of goods were observed in all major commodity groups. The increase in risks to the global demand growth notwithstanding, the tendency for indicators of price and cost competitiveness to improve persisted, with competitiveness growing on account of an increasing positive contribution of labor productivity rather than the cuts in labor costs that dominated in the past.

The income account surplus contributed to merely less than one fifth of the current account surplus as compared to almost a half in the first quarter. In the second quarter, losses incurred by foreign direct investment companies grew at a considerably lower rate. The share of EU funds in the current account surplus posted a relatively minor quarter-on-quarter fall, whereas the share allocated for capital investment shrank more than twofold as a result of a smaller amount of funds received from the Cohesion Fund.

Stabilization of the Latvian economy and improvement in business confidence or outlook, observed in the second quarter, facilitated the availability of capital. The accrued foreign direct investment grew by approximately LVL 80 million; inter alia, its major increases were registered in real estate transactions and several manufacturing sectors (manufacture of wood, chemical industry etc.), supporting a positive outlook on the dynamics of industry and exports in the short term, the Bank of Latvia said.

Latvia's net foreign debt continued on its downward trend – LVL 7.2 billion or approximately 58% of GDP in the second quarter, down from LVL 7.4 billion in the first quarter. The debt declined on account of contracting bank long-term liabilities and corporate sector debt.

According to the Bank of Latvia's previous projections, the current account surplus this year will amount to approximately 5.2% of GDP.