Latvia Retail Sales February 2008

As in the case of Estonia, retail sales in Latvia experienced something of a rebound in February, with an increase in sales after two consective months of contraction (seasonally corrected figures), according to data out today from Latvijas Statistika. On a year on year basis sales were up by 1 percent in February, following a year on year contraction of 0.7% in January. Compared to the combined months of January – February 2007, in January and February combined retail trade turnover increased by 0.2%. I think here we should be thankful for small mercies, since the situation has consolidated rather, and not deteriorated further. However the increase was rather more moderate than the 4% year on year increase which took place in Estonia.



Apart from the general point which I made in the case of Estonia that, apart from noting the fact, we really need to wait a few more months to see where all this is leading before trying to draw any lasting conclusions, I also think that it is worth bearing in mind, as in the case of Estonia, that real wages (derived by subtracting the monthly rate of inflation from the rise in money wages) were still rising at an annual rate of 11.1% back in December (which is the last month for which we have data at this point), although as can be seen in the chart the rate of increase is decelerating rapidly (although again this is as much a by-product of the rapid acceleration in Latvian inflation as it is of anything else, since money wages were still rising at a 25.2% annual rate in December). So when we come to think about retail sales we should remember that for the time being people continue to have more money in their pockets, although as inflation comes under control this situation is almost certainly not going to last, and when it doesn't then that is when I think we will see the real impact on retail sales.

Estonia Retail Sales February 2008

Well today we have what on the face of it is some mildly positive news from Estonia, although, as I will explain, there are reasons for exercising caution at this point. Basically Estonian year on year retail sales growth accelerated slightly in February following a slight annual contraction (according to revised data) in January. Retail sales increased an annual 4 percent after being virtually stationary in January when compared with January 2007, the Tallinn-based statistics office said today.



In February, retail sales were running at a level of 4.2 billion kroons, which is a half billion kroons more than at the same time a year ago. If we come to look at the volume index for retail sales (which is not seasonally corrected) we will see that the picture is far from clear.




We can certainly say that for one month the rot seems to have been stopped, but since January and February are far from being typical months in retail sales terms we would do well to wait a few more months yet before jumping to too many conclusions.

One factor which may well be worth taking into account when looking at these retail sales numbers is the fact that real wages in Estonia (at least up to December, which is the last month for which we have data) have been continuing to rise at a hefty clip. In December gross wages were still increasing at an annual rate of 18.05%, which, if you subtract the annual cahnge in the CPI for December of 9.6% still leaves a real wage increase of 8.45%. As inflation comes under control these kind of wage increases will obviously not be happening, and this will be noticed at the level of retail sales. So we should expect further, and more substantial corrections to sales to take place as wages are brought back gradually under control. In fact the length of time it takes to achieve this end will be one measure of the severity of the "stagflation" which we might expect to see in Estonia for some considerable time to come.

Estonia Foreign Trade January 2008

Estonia's trade deficit narrowed in January, reaching its lowest level in almost two years. A large part of the reduction was a result of a rapid drop in imports - which fell year on year by 4% in January, and this undoubtedly reflects the rapid contraction in internal consumer demand, but exports did also bounce back nicely, although the level of growth - at 4% - was still well below the 12% year on year growth rates achieved in October and November.





Basically the rather volatile nature of Estonian exports makes it hard to draw any worthwhile lasting conclusions at this point, other than to note that the improvement in the trade balance will impact positively on GDP.


In January 2008 exports reached a value of 10.1 billion kroons and imports 13.2 billion kroons. Compared to January 2007 the value of exports rose 4% and imports fell 4%. The trade deficit was 3.1 billion kroons. Compared to January 2007, the trade deficit decreased by about a billion kroons.

In January 2008 the export share of EU countries was 75% and the share of CIS countries 10%. The most important export partners were Finland, Sweden and Latvia, which collectively accounted for 46% of total exports. Exports to the EU countries increased by 1.1 billion kroons when compared to January 2007.

The import share of the EU countries was 79% and that of CIS countries 12%. The most important partners in import terms were Finland, Germany and Sweden, which collectively accounted for 38% of the total imports. Imports from the EU countries increased by 272 million kroons when compared to January 2007.




The foreign trade deficit with the EU countries decreased from 3.8 billion kroons to 3 billion kroons compared to January 2007. Compared to January 2007, the trade deficit with the CIS countries dropped from 1.5 billion kroons to 0.6 billion kroons. The biggest trade surplus was achieved with Norway (247 million kroons) and Sweden (98 million kroons). The biggest trade deficit was with Germany (1.0 billion kroons), Russia (484 million kroons) and Lithuania (282 million kroons).

In both exports and imports the most important commodity section was machinery and equipment (the share 20% of exports and 21% of imports). Compared to January 2007, the greatest increase in exports was in the metals and products thereof (62%), transport equipment (20%) and agricultural products and food preparations (19%). The exports of mineral products decreased significantly (42%). The imports increased in the sections of raw materials and products of chemical industry (12%) and agricultural products and food preparations (10%). Among other commodity sections the imports decreased. The biggest decline in imports was in the section of wood and products thereof (18%) and paper and articles thereof (18%).

Latvia Producer Prices February 2008

Producer prices in Latvian industry rose by 1.7% month on month in February, according to data from the Latvian Central Statistical Bureau. Year on year producer prices increased by 11.4% over February 2007. On the monthly basis, the biggest increase was in tariffs for electricity, gas, steam and hot water supply (by 0.6 percentage points). The rise in prices for the manufacture of basic metals increased the overall level of producer prices by 0.5 percentage points, while the manufacture of food products and beverages was responsible for 0.4 percentage points. However, there was a decrease (by 0.3 percentage points) in the price of manufacture of wood and wood products (except furniture).



In annual terms the manufacture of food products and beverages made the biggest impact on the overall level of producer prices, increasing by 4.7 percentage points. The increase of the tariffs of electricity, gas, steam and hot water supply raised the overall price level by 1.7 percentage points.

Prices in the export sector were up 5.7% year on year, and 1.5% month on month. This last detail is important, because it should be noted in the chart above that both total producer prices and prices in the export sector alone have both - hopefully only temporarily - ceased their downward march in terms of year on year rates of increase. Like this it will be hard to sustain export competitiveness.