Slight growth in manufacturing in October

According to the data of the Central Statistical Bureau, the amount of manufacturing production in October 2013 grew by 0.3% month-on-month (seasonal factors excluded). Year-on-year growth (calendar effects excluded) was 1.9%.

Month-on-month, the fastest growth was posted by the production of chemical substances and chemical products (+12.4%; primarily as a result of seasonal fluctuations); production of computers, electronic and optical equipment (+15.6%; this branch is continuing a very dynamic growth, the year-on-year growth rate in October was already at +53.1%) and production of equipment, mechanisms and machine tools (+6.2%). Of the large industries, in wood industry there was a slight month-on-month drop in the amount produced (-2.1%), the situation is similar in the production of fabricated foodstuffs (-0.7%). The fabricated metal products branch, on the other hand, gives no cause for joy (-3.5%), and it has to be noted, moreover, that its output has been dropping for four consecutive months, dropping into year-on-year minuses in October. In the traditionally unsteady transport vehicle production, there was a substantial drop (-24.8%).

The sixth month-on-month rise in manufacturing in the course of the last seven months indicates that the brief moment of weakness that the branch experienced in the spring months as a result of problems at "Liepājas metalurgs" is over, and that other branch enterprises continue on a trend of growth, albeit slower than before. The industry output is actually back at the level where it was at the previous turn of the year, which means that up to now, the increase in the output amount of the branch has been able to completely "cover" the deficit caused by Latvia's formerly largest manufacturing enterprise. We can only imagine how good the branch indicators would be if "Liepājas metalurgs" had not experienced the problems it did. 

When commenting the performance and prospects of manufacturing in spring and summer, we already mentioned our worries regarding the sustainability of external demand. The industrialists themselves acknowledged that worry: thus the European Commission's survey in the second quarter pointed to a rise in the percentage of those who mentioned insufficient demand as a factor limiting growth. The pessimistic predictions, however, came to pass only partially. External demand as an engine really did stall somewhat but it was at least in part compensated by domestic demand (this is supported by the sales data of manufacturing enterprises, which point to a rise in domestic sales since the beginning of the year and a drop in export-market sales). As of the middle of the year, however, several kinds of business tendencies in Europe have been gradually improving and, as a result, the second and third quarters in the European Union were better than previously predicted. This has been felt by the manufacturers who, after a small drop in confidence in summer, now express more optimism in their future outlook. In November, the confidence indicator was close to the highest post-crisis point experienced at the beginning of the year. Demand as a limiting factor in the fourth quarter of this year has been mentioned in 42.8% cases, which is the lowest level since the second quarter of 2008. On the other hand, 34.3% of those surveyed are of the opinion that there are no limiting factors right now, just have to go on working. Judging from these indicators, it seems that there are no obstacles for further growth of manufacturing.

Yet there is a fly in the ointment. First, there is still no certainty regarding the sustainability of growth in Europe. Fundamentally, problems remain: growth is fragile and fragmented regionally. Second, the capacity utilization has been hovering around 72% for almost two years, which, the crisis years notwithstanding, is the average level for Latvian manufacturing. Even if the European Union economy continues to recover, further development in the industry will be unthinkable without additional investments. Just like output volumes, investment too stagnated in the first half of the year, yet various observations indicate that in the second half of this year and next year, increased activity is to be expected in this area – we have to keep in mind, that recently, the amount of manufacturing investment is closely related to the co-financing available from European funds.

To summarize –the industry is expected to continue to develop, yet the dynamic of growth might be more moderate than before. The limitation on further growth will increasingly be related not only to external demand but also to the supply side, i.e. to whether or not manufacturing enterprises are capable of increasing their output from the point of view of both quantity and quality.