Manufacturing ends the year on a positive note

The performance of manufacturing in December is like icing on a cake – the manufacturing output in December (seasonal effects excluded) grew by 0.8%, thus closing in style the year that had been very successful for manufacturing. Year-on-year, the total output of manufacturing in 2012 grew by 9.3%. This successful dynamic was reflected in the gross domestic product (GDP) as well: manufacturing is a branch that is among the greatest contributors to GDP growth. A substantial leap forward, as a result of the cold weather, was also posted by electrical power and gas supply branch (+7.2% month-on-month). Mining and quarrying meanwhile posted a logical minus (-12.2%).

In the fourth quarter of 2012, manufacturing output grew 1.8% (seasonal effects excluded). The growth was effected by an increase in the output volumes in the sub-branches of wood and wood products (+3.2%), chemicals (+17.6%), pharmaceuticals (+17.0%), as well as fabricated metal products (+2.3%). Negative contributors were the reduced output volumes in metal production (-6.7%), production of computers and electronics (-10.2%), as well as production of automobiles and trailers (-7.9%).

Despite the unfavourable developments in the global economy, Latvian manufacturers managed to retain growth and competitiveness throughout 2012.  If in previous years we pointed out that competitiveness in manufacturing grew on account of reduced unit labour costs, evaluating the manufacturing structural data for 2012 we see that manufacturers have been increasingly diversifying their production and have been looking for new markets to sell this production. This is supported by the fact that in 2012 (11 month data) manufacturing growth was primarily fostered by the increase of 17.7% of sales in export markets whereas in the domestic market sales growth was much slower, at 5.4%.

The confidence data aggregated by the European Commission have been stable throughout 2012, yet with a tendency to improve toward the end of the year. The January 2013 industry confidence indicator is at the high level seen only at the end of 2007, which points to optimism among entrepreneurs. The expected capacity utilization rate for the first quarter of 2013 is also the highest since the end of 2007. 

For 2013, we forecast a rise in production output in range from 4% to 6% in manufacturing. The rate of growth will be more moderate than in 2012 as a result of the yet-to-be-resolved European debt crisis and the limited loads of production capacity in some sub-branches of manufacturing. The lack of capacity may become the main factor limiting an even more rapid development of the branch; albeit in 2012 there were investments made in manufacturing, investment activity abated somewhat at the end of the year and conversations with manufacturers point to a more moderate investment activity also at the beginning of 2013 as a result of concerns regarding problems in Europe.