Industrial development uncertain; impact of global recession becoming pronounced

Manufacturing production volumes (seasonally adjusted data) dropped slightly, 0.9%, in October after a rather rapid leap in the previous month. Growth remains moderate from the twelve-month perspective (+5.9%), yet, compared to six months ago, when the annual growth in manufacturing reached 13-17% range, the rate of growth has dropped substantially.

The uneven dynamic in the branch is to a great extent the result of the filled orders by some of the large businesses, which lead to steep rises and drops in some months. Among these are, e.g., orders filled on several ships by Rīgas Kuģu būvētava; soon the new furnace at Liepājas Metalurgs will begin work. Fluctuating output volumes in manufacturing will thus remain also in the coming months. Fluctuations notwithstanding, the global and domestic developments may combine to reverse the overall trend from "two steps forward one back " to "one step forward two back".

The confidence index of the Latvian industrial sector has remained practically unchanged for three months, whereas in the European Union at large it keeps deteriorating (see Fig.). It can be predicted that as soon as the next month Latvia will join the downturn, for then the data will include the impact of the suspension of the operations of "Latvijas Krājbanka" on business confidence. The external situation also keeps deteriorating.

These developments will act to augment the uncertainty even if a direct impact (limited current assets, delays in EU fund payments or lending) on their business will be felt by few enterprises. That could also limit industrial output, because money flow problems may delay filling of orders; greater caution on the part of the population in expenditure may have an effect on domestic demand which recently had improved substantially.

The positive news is that the evaluation of the volumes of new orders to export markets has improved in November. New markets and niche products may proved to be the proverbial straw that in the freezing domestic waters and the rough seas of the global economy. We can only hope that it is strong enough.

Confidence indicator in the industrial sector (balance of responses)

Source: European Commission