04.11.2016.

Manufacturing finishes the third quarter on an optimistic note

  • Igors Kasjanovs
    Igors Kasjanovs
    economist, Latvijas Banka

According to the Central Statistical Bureau data, manufacturing production output in September increased by 2.2% month-on-month (seasonal factors excluded). Year-on-year, the increase was 5.6%. These published data imply that the third quarter lagged behind the very successful second quarter, with the production output dropping (by 0.6%). That was one of the reasons for the relatively weak growth of gross domestic product (GDP), which was indicated by the GDP flash estimate published earlier this week.

In the third quarter, production output increased quarter-on-quarter for foodstuffs (+1.6%), textiles (+5.2%), as well as in the so-called medium-high technological branches – the production of computers, electronic and optical equipment (+7.6%) and electrical equipment (+4.5%).

Production amounts decreased substantially in the repairs and instalment of equipment and devices (-12.5%; effect of modernized trains in the second quarter) and fabricated metal products (-8.1%), as well as slightly in wood industry (-0.8%). It must also be noted that the third quarter was not successful for the energy sector.  Production dropped 6.3% quarter-on-quarter, primarily because of the small amount of electrical energy produced. The operational data for October, however, indicate that the end of the year could improve for the energy sector (but it will depend on the weather).

Next year, the performance of manufacturing will as always largely depend on developments in the external environment. It is important for the branch that there are no new geopolitical and economic turbulence. Yet the internal factors also will play a role – the resumption of the flow of funding from the European Union (EU) will make its positive contribution and, as a result, the manufacturers that produce for the construction branch, will feel a rise in demand.

The resumption of financing from the EU funds will probably renew investment – at least in part – activity in the branch. Yet as far as investments are concerned, it is clear that the inaccessibility of EU funds is but one factor that is behind the reluctance of manufacturers to make investment. The main reason is found elsewhere: it is the uncertainty related to both global and domestic developments.

With regard to domestic developments, usually the tax policy decisions are mentioned, but lately, the issue of electrical energy tariffs has also been topical. The large and energy-intensive enterprises are not happy with the high electrical energy tariffs, whereas the small enterprises and those whose consumption of electrical power is irregular are dissatisfied with the new distribution tariffs and the proposed mandatory procurement component (MPC) reform.  

The MPC reform is currently being debated in the Saeima in the context of next year's budget and looks likely to be postponed till 2018.  Yet it seems to me that it is important to have clarity regarding the reform as soon as possible, for doing nothing and postponing the reform prolongs the period of uncertainty and there is a risk that in the pre-election atmosphere politicians will find it even more difficult to make a decision.  For manufacturers, on the other hand, certainty is crucial, for they must know what to take into account in the future.  

APA: Kasjanovs, I. (2024, 29. mar.). Manufacturing finishes the third quarter on an optimistic note . Taken from https://www.macroeconomics.lv/node/1863
MLA: Kasjanovs, Igors. "Manufacturing finishes the third quarter on an optimistic note " www.macroeconomics.lv. Tīmeklis. 29.03.2024. <https://www.macroeconomics.lv/node/1863>.

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