After the recent acceleration, some slowdown in manufacturing observed

The fast rate of output growth in manufacturing seen in mid-2015 has abated: in October, the sector's development could be described as stagnating. 

According to the Central Statistical Bureau data, manufacturing output in October 2015 dropped by 0.7% month-on-month (seasonally adjusted data). Year-on-year, manufacturing output has not changed (working-day adjusted data).

Month-on-month, the largest positive contributors to manufacturing were the production of metals (+5.0%) and production of machinery and equipment (+12.5%) – output in this sub-sector has reached a historic maximum. On the other hand, output has dropped fast in the manufacturing of computers (-15.9%). Year-on-year however, this sub-branch is still the second most positive contributor to the growth of manufacturing after wood-processing. Since data on the development of metal industry are not available, any conclusions can only be based on information available publicly. The media report that in October, scheduled equipment repairs were carried out at "KVV Liepājas metalurgs", with production resuming only at the end of the month. Therefore, the contribution of metal industry to the month-on-month growth in manufacturing is likely to have been negative. Company representatives have indicated that interruptions in the functioning of the enterprise are possible in the coming months and that production will take place only in one rolling mill, with active production potentially resuming only in the spring of 2016.

Problems continue in the food industry: falling output both in month-on-month and year-on-year terms (-1.7% and -8.9%, respectively). The greatest difficulties are experienced by the fish-processing branch, where output dropped by 40% year-on-year. The drop is of course to a great extent related to Russia's ban on fish and fish product imports from Latvia because of violations of veterinary and sanitary requirements. For the time being, Russia has made no announcements on lifting the ban. In view of the production output fall registered this far and the meagre future prospects, the recent news received from branch associations is hardly surprising: the number of employees at the largest Latvian fishing industry enterprises is estimated to have dropped almost by half. The situation is not easy for dairy producers either: the data on production turnover point to a 12% drop in the first nine months of the year. To a great degree, it represents the price effect, since, after a two-year low reached last December, output grew this year. This suggests that dairy manufacturers are slowly finding and establishing themselves in alternative markets.

In wood-processing, output in October dropped somewhat, slightly lagging behind the all time maximum reached last month (-0.6%). In 2015 overall, this sub-branch has likely been one of the key sources of manufacturing growth. To a large degree, the great performance of the wood-processing sub-sector is a result of the investments made at the end of 2013 and in 2014. Even though capacity utilisation in the sector is very high, this year investments in wood-processing have plummeted (-34%); moreover, a drop was observed in all three quarters of 2015. Combined with the lack of growth in construction in the largest export markets, it leads to conclude that the developments in wood-processing will be less positive in the coming years.

Overall, capacity utilisation for the fourth quarter of this year as reported by Latvian manufacturers has decreased somewhat, yet the level is still high, pointing to a need for investment. Even though there has been some investment growth this year overall, the amount of non-financial investment in manufacturing in the first three quarters of 2015 has remained almost unchanged from the previous year (0.7% drop). The greatest negative contribution came from the aforementioned wood-processing. The greatest positive contributors to overall non-financial investment were manufacture of motor vehicles and trailers as well as printing and reproduction of recorded media. In printing, for instance, Livonia Print has been investing actively with the help of European Union funds. These investments pay-off, since the enterprise operates very successfully in export markets. Moreover, in the Export and Innovation Awards 2015 – a competition organized by the Ministry of Economy and the Latvian Investment and Development Agency - Livonia Print was recognized as the Best Exporter in the group of large and medium businesses.