Another rise in manufacturing in October; future to be determined by local tax decisions and global demand

After a small drop in September, a rise was once again registered in manufacturing in October. According to the data of the Central Statistical Agency, the manufacturing industry output in October (excluding the seasonal influence) grew 1.5% compared to September, with the annual rise (excluding the influence of the number of working days) reaching 25%.

Many industries have posted a rapid growth, the largest among them for automobile, trailer, and semi-trailer as well as other vehicles, electrical equipment, building material, readymade metal products, clothing textile as well as pulp product manufacturing. Over the reference month, the greatest rise in production output was observed in pharmaceuticals.

Even though the dynamics of new orders and turnover posts a moderate rise in the domestic market as well, foreign demand still remains the driving developmental factor. The slow and uneven development of domestic demand certainly limits the industrial growth opportunities. Even though the output levels are notably above the lowest point in February 2009 (by 28%), it still lags behind (by 7%) from the highest pre-crisis performance.

Both budget decisions and the instability of foreign demand may have a negative influence on next year's development of manufacturing. Budget consolidation, supported to a great extent by tax raises, will slow down growth opportunities. Uncertainty about the development of foreign demand also remains, reinforced by the latest developments in the European financial markets.

This is also reflected in the entrepreneur mood indicators: according to the data published by the European Commission, entrepreneur optimism has been gradually diminishing in recent months. Albeit slowly, the industry confidence indicator has been deteriorating since July of this year. Even though, owing to a higher assessment of production demand, it increased by 1.1 percentage points in October, a small drop was again observed in November. A slower development of the industry is therefore expected in the last months of the year and its rate of annual growth will be additionally influenced by the base effect (i.e. development will be measured against a higher point of reference).

Nevertheless, a timely adoption of the state budget and a framework for middle-term fiscal policies along with the competitiveness-enhancing measures already adopted in the private sector may have a positive influence on the mood of the investors, which would ensure greater financing for the development of the industry.