According to FM, two thirds of the increase in the export of goods is due to the increase in prices

After a slight slowdown in the growth rate of exports of goods in July of this year, growth in exports of goods accelerated again in August, thus bringing the value of exports closer to the € 2 billion mark, he notes. Ministry of Finance (FM).

The export value of commodities has maintained high and steady growth for a year and a half. Over the coming months, double-digit annual export growth is expected to remain, but the growth rate will gradually decline.

One of the main reasons for such rapid and sustained growth in exports of goods is rising prices. The August data is not yet available, but the July data shows that the export unit value index increased by 21.6% during the year. Applying the July export price increase to the August goods export data, in real terms (ie excluding the price effect) the export of goods would increase by 11.1% in August. However, in eight months, real export growth would be 9%, rather than 31.2%. Therefore, it should be concluded that about two thirds of the increase in the export of goods is provided by the increase in prices.

The increase in prices is observed for almost all raw materials, ie energy resources, food, metals, wood, thus affecting the final prices of goods, as logistic and production costs have significantly increased. The high level of commodity prices will remain both this year and next year, so in nominal terms the value of exports of goods will also increase in the coming months, but growth will gradually slow down, which will be driven by less activity in the world in the whole.

The high price of energy resources and the deterioration of the geopolitical situation have a negative impact on the purchasing power of citizens and on the activity of investors both in Europe and in other regions of the world. This year, the forecasts of international organizations regarding economic development have been revised downwards. The prospects for economic development for the next year are also diminishing. The most current data on business and household confidence, on the other hand, confirm concerns about the slowdown in the pace of economic development. The European Union (EU) economic sentiment indicator has been declining since November last year, but in July this year the indicator fell below 100 points. The decline continued in August and September. The bad thing is that the assessment of economic activity by entrepreneurs and consumers is deteriorating in almost all EU Member States, as well as in all sectors, including industry and construction, which are most important for exports of Latvia.

The support measures implemented by the government for entrepreneurs and households both in Latvia and in other EU countries, aimed at reducing the increase in the prices of energy resources, will help overcome the slowdown in economic activity. However, it will not be possible to fully compensate for the sharp rise in the prices of energy resources, which has significantly increased the costs of production, supplies and construction. The rate of increase in the value of exports of Latvian goods is expected to weaken in the fourth quarter of this year and early next year, which will be driven by lower external demand due to high energy resource prices.