Annual growth and future risks in manufacturing

After growing for seven consecutive months the manufacturing industry posted a small decline in September. According to the information by the Central Statistical Agency, manufacturing output decreased 1.7% over a month (seasonally adjusted data). The output of pharmaceuticals, wood pulp and wood products as well as food products was down in September.

Owing to the previously observed increases, however, the annual growth remained very substantial - year-on-year, the index of the physical volume increased 19.7%. The main contributors were the increases in the production of wood pulp and wood products, ready-made metal products, non-metal mineral products, electrical equipment, and clothing.

In the third quarter, the annual growth rate of production output increased to 19.9% ensured by the important growth in July and August. Thus the positive impact of the industry on the development of economy also increased substantially. In the first nine months of the year a 12.6% increase was registered in the industrial sector.

Foreign demand and the competitiveness of producers remains the principal factor of development. The industrial turnover in manufacturing dropped 4.1% year-on-year in the domestic market, whereas export turnover grew 28.8%. The increasing developmental risks faced by the global economy point to the possibility that the rate at which demand is growing may slow down. This is also supported by the results of entrepreneur surveys. According to data published by the European Commission, the evaluation of the economic situation in industry has become more cautious over recent months. In July, August and September there was a drop in industrial confidence, which improved somewhat in October. The October improvement was determined by a more positive evaluation of the production demand, yet the production activity expected in a month is still evaluated lower than in September.

Over the short term, the budget consolidation required for next year will act to slow down domestic demand. Supply factors may also soon begin to hamper industrial development as the free production capacities are exhausted. Slower growth in manufacturing is expected in the fourth quarter of 2010, influenced, in addition to the above factors, by the base effect of the previous year.