Analytics, Economics, Financial Services, Foreign trade , Latvia

Morten Hansen.

Latvia's current account surplus grew to 14.2% of GDP in the second quarter of this year and stood at LVL 478.8 million; there was a 15.1% deficit in the same period of 2008. The Bank of Latvia highlighted LVL 1.9 million (0.1% of GDP) surplus in goods and services trade for the first time since 1994 and hailed the data as a turning point on the path to more sustainable growth.

"It is a turnaround which is sensational," said Morten Hansen, head of the economics department at the Stockholm School of Economics in Riga.

Large current account deficits, caused by surging domestic demand and imports, were the hallmark of Latvia's economic overheating in recent years, Hansen explained, adding that the turnaround reflected the slump in the economy and the fact that costs could be cut flexibly.

The expert also said the data partly addressed worries about Latvia's lack of competitiveness, which have led to some calls for devaluation.

Second quarter improvement in the balance of goods and services, compared with the first quarter when it stood at 4.2% of GDP, resulted from a 4.2% growth in exports volume and 9.4% contraction of imports, spokesman for the Bank of Latvia Martins Gravitis informed LETA.