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Boston, MA -- (SBWire) -- 01/30/2014 --We retain our reasonably positive outlook towards Latvia's external accounts. While some longer-term challenges do remain in play, Latvia's current account deficit remains one of the smallest in the EU, and we believe that an increasingly dominant services account surplus will help to offset any future weakness from the trade deficit.

We have revised up our forecasts for the current account deficit, which we expect to be 1.5% of GDP in 2013 and 1.2% of GDP in 2014. Latvia's accession to the eurozone in January 2014 is not expected to have a major impact on the current account, although a slight acceleration in exports might be experienced as a result due to reduced transactional costs.

In Q213, the current account posted a surplus equivalent to 0.8% of GDP, driven primarily by a decline in commodity imports, although we expect the current account to slip back into deficit in the second half of the year. The trade deficit dropped to 0.6% of GDP in the same period, while import growth became slightly negative on the back of weaker intermediate and capital goods imports. We attribute the shift to shrinking production volumes of export-oriented companies and low investment activity, although these trends should reverse in 2014 as external demand shows further sign of improvement.

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A discussion regarding the opportunities for the development of freight transport in the transport corridor between the Baltic and Black Sea was held between Latvian Transport Minister Anrijs Matiss and Turkish Transport and Communication Minister Binali Yildirim, reported LETA/Nozare.lv in April 2013, citing the Ministry of Transport. The meeting was organised on April 2 in Riga. The ministers entered into a protocol of intent on cooperation in transport and logistics, including the growth of freight transport between Turkey and the Baltic Sea on the Zubr container freight railroad. Additionally, both ministers agreed to a fact that there exists enormous potential for additional collaboration, especially in the fields of transit and aviation. This is on top of the positive noises being made about the Rail Baltic link between Estonia and Poland, which will link Tallinn with Latvian capital Riga, Kaunas in Lithuania and the Polish border. In December 2013, the International Rail Journal reported that European Transport Commissioner Siim Kallas had called on the Baltic states to work together to make the rail project a reality.

In a speech to the European Parliament's Baltic Europe Intergroup, Kallas stated: 'There is money available to the countries concerned, and it is available now. But, and this is a big 'but', they have to play their part to prepare mature projects. As Western Europe becomes increasingly interlinked, a more thinly populated Eastern Europe risks being left behind. We must not allow that to happen. That is why Rail Baltic should be built as soon as possible.'

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