Some improvement in manufacturing in July followed by a slight downturn again

Although various data suggested a potential improvement in manufacturing, production output posted a slight decline in terms of volume in July. Nevertheless, notable growth has resumed in several sectors of manufacturing, inter alia those with a considerable share in the Latvian industry and high value added. It means that, following a prolonged downslide, some sectors have managed to stop further contraction and to stabilise production by taking various measures to expand their sales. For instance, the wood sector has managed to increase its sales volumes for several consecutive months via diversification of its markets.

According to the assessment of businesses, weak domestic as well as external demand and financial constraints still remain the major obstacles to the recovery of manufacturing. The market conditions and sales problems reduce the amount of current assets required for production, and the possibility to borrow is quite limited at this stage. Hence, further development largely depends on both global recovery and government capability to support businesses in this situation.

In June, the volume of new orders for manufacturing exports at constant prices increased somewhat. In July, industry indicators were even slightly better than in June, hence, at least a minor monthly increase in output could be expected. Yet, according to the CSB data, manufacturing posted a slight decrease again. In comparison with June, the seasonally adjusted volume index of industrial output in manufacturing reported a minor fall of 0.6 %.

Energy and gas supply also posted a month-on-month reduction (6.4%) while mining and quarrying saw a notable pickup of 8.8%. Overall, the industrial output at constant prices has decreased by 1.4% over the month.

The most pronounced drop was observed in the pharmaceutical industry, and the manufacture of electrical apparatus and building materials recurrently posted a considerable fall. Positive news came from the manufacture of wood and wood products reporting growth again; the manufacture of textiles and that of other transport equipment soared by more than 40%, and the manufacture of chemical products, computers, electronic equipment and optical instruments, as well as furniture grew significantly.

Speaking about the annual changes, a rapid downslide persists. In July, the working day adjusted volume index of industrial output in manufacturing declined by 18.8% year-on-year. The most pronounced fall was recorded in pharmaceutical industry, with its output plummeting by more than 60%; machine building posted almost as sharp a drop, and a considerable decrease persisted in several other sectors. Notable annual growth was reached only in the manufacture of wood and articles of wood.