Manufacturing departs slightly from the achieved heights

According to the data provided by the Central Statistical Bureau, the volume of production of manufacturing at constant prices in July 2016 dropped by 1.0% (seasonally adjusted data). Year-on-year, the volume of production increased by 3.4%.

It is no surprise that, month-on-month, there was a drop in output. The good performance of manufacturing in the previous month was, in part, determined by a one-off volume increase in the repairs and installation of facilities and equipment, related to the modernization of train cars. In July, the branch posted a 34.4% drop (month-on-month, seasonally adjusted data), which, to a great degree, determined the overall negative performance of the branch.

Of the not so pleasant news, we should also highlight the decrease in wood industry production by 4.3%, with the annual growth rate thus dropping to 3.9% in the branch, which is an uncommonly low indicator for recent times. This result can possibly be explained by the uncertainty caused by the results of the British referendum. The sales have dropped at an even faster rate, which could be explained by the price effect impacted by the weakening of the British pound. It is too early to tell whether the referendum results have a substantial impact on the demand for wood, in all likelihood, they do not.

An even greater minus month-on-month was prevented by the monthly rise in food industry output by 2.8%, even though year-on-year, the output volumes are still smaller, which is mostly on the account of fishing industry and milk processing.  In the rest of the sub-branches fluctuations are observed in the usual range of fluctuations.

In recent years, the issue of the impact of the Latvian energy sector on the competitiveness of manufacturing enterprises.  The entrepreneurs call for a solution regarding electricity prices have been particularly vociferous, for it is among the highest in the region for industrial consumers. It means that by equal conditions, what is produced in Latvia is more expensive and thus less price-competitive, than what is produced by other entrepreneurs in the region.

The drop in electricity tariff is a sensitive issue for entrepreneurs: a high tariff impedes competitiveness but lowering the tariff for entrepreneurs would probably mean raised tariffs for other groups of consumers. For quite a while, this issue remained unresolved, but this year, the Ministry of Economy has come up with a proposal to develop a differentiated mandatory purchase component payment, which would lead to a partial solution to the problems entrepreneurs face but would also mean an increase for the medium intensive consumers – the public and commercial sectors. The initiative by the Ministry of Economy is to be congratulated from the point of view of energy-intensive entrepreneurs, but it is too early to say if it will be implemented because the interests of other sectors also have to be taken into account.