Manufacturing on a rise in April

According to the data published by the Central Statistical Bureau of Latvia (CSB), manufacturing output increased by 2.3% month-on-month in seasonally-adjusted terms in April. The calendar-adjusted year-on-year increase amounted to 5.6%. As expected, no positive changes were registered by the energy sector in April either: regardless of a month-on-month increase of 0.9%, output remained extremely low at –16.4% in annual terms because of the warm weather conditions.

The month-on-month rise in manufacturing output was primarily underpinned by the positive contributions of three sub-sectors: manufacture of food products (2.5%), manufacture of fabricated metal products (7.8%) as well as manufacture of electrical equipment (14.4%). The sub-sectors of the food industry deserve special attention as all of them reported an increase, except manufacture of dairy products where only the annual growth rate was positive. This was the case even in the fishing industry, although it may be that the output was primarily used for building up stocks rather than selling.

An impressive rise is reported in the metalworking sub-sector. Its growth rates, traditionally high up to 2013, decelerated significantly last year. Hopefully, the rise seen in this particular sub-sector at the beginning of the year is associated with the recovery of the European Union economies and a correspondent improvement in the demand for our manufacturers' output. The ailing manufacture of basic metals continued to display significant month-on-month volatility at –29.5%. This was one of the sub-sectors significantly weighing down of the overall performance of manufacturing in April.

In addition to that, the monthly data for April were weak in manufacture of textiles (–10.9%) and wearing apparel (–3.4%). Russia is an important market for both these sub-sectors and they have been following a downward trend for quite some time.

Sectoral confidence indicators published by the European Commission also have become slightly more volatile and more negative in the last few months. This is no surprise as the geopolitical situation changed sharply in April and May. Industrial confidence indicator hit the lowest mark within a year in May. Industrial outlook on new orders deteriorated slightly, albeit still remaining at the average level of 2013.

The annual growth of manufacturing is likely to remain in a positive territory also in the coming months as a result of the progressively fading negative base effects stemming from the closure of Liepājas Metalurgs plant. Manufacturing sales data scheduled to be published by the CSB on 9 June could be of particular interest this month. They will probably provide more information about the impact of the geopolitical situation, as in case of economic shocks the first signal usually comes from sales, translating into reduced industrial output with a slight time lag.