Manufacturing grows on account of higher wood industry output

According to the Central Statistical Bureau data, the volume of output in manufacturing grew by 0.4% month-on-month (at constant prices, seasonally adjusted) in September. The overall increase in total industry production (+0.2% in comparison with output in August) was driven by 0.9% growth in electricity and gas supply, but moderated as a result of declining output volume  in mining (by 0.4%). Manufacturing also posted a positive annual growth (1.9%) in September. Following two quarters of negative annual growth, in the third quarter manufacturing output again recorded a year-on-year increase (1.7% year-on-year and 2.4% quarter-on-quarter). 

In September the bigger sub-sectors of manufacturing were also the bigger contributors  to its growth. Successful implementation of several projects boosting production capacity, as well as the recovery of construction markets in the major trade partners in Europe facilitated growth in wood industry (where more than 73% of the output is exported). The output has expanded very rapidly for such a large sub-sector: by 4.0% in comparison with August and by 8.9% in comparison with September 2012. Growth in manufacture of products of wood was observed not only in September, but also in Q3 2013 (2.6% quarter-on-quarter and 5.0% year-on-year), unlike the previous quarter when the output was declining. In fact in Q3 the sub-sector provided the second largest contribution to quarterly growth, following a surge in manufacture of computers, electronic equipment and optical products (+30.4% quarter-on-quarter and 40.1% year-on-year).

The sub-sector of manufacture of food continued to expand both in September and in the third quarter overall. In annual terms, the effect of the JSC Liepājas Metalurgs could still be felt in the manufacture of basic metals (-67.5%). In monthly terms, however, the fall stopped in August, and in September the output increased by +8.6%, suggesting growth in the sectors' other companies. In the manufacture of chemical substances a decline persisted in monthly, quarterly and year-to-date terms, which is in line with the news that profitability of chemical companies in Europe has also decreased. The volatile sub-sector of the manufacture of other transport equipment had a negative contribution (-16.4% m-o-m; -35% year-on-year), having demonstrated steep growth in the respective period of the previous year. Nevertheless, probably already in October an increase in this sub-sector might be observed, associated with launching the last of the five new ships built for the Navy by Riga Shipyard (Rīgas Kuģu būvētava).

This year the industrial sentiment in Latvia, examined by the survey of the European Commission (EC), has been volatile and without a definite trend. It is also reflected in the manufacturing output data: in the first nine months of this year output remained almost unchanged in comparison with the previous year, standing at -0.1%.

In October the Economic Sentiment Indicator (ESI)[1] of the European Union was on the rise for the sixth consecutive month and the overall situation in Latvia's major trade partners could also be assessed as positive. The manufacturing Purchasing Manager's Index (PMI)[2] signalled  growth in the euro area and edged above the September level, pointing to expectations of modest improvement in the situation also at the outset of the final quarter of the year. After the negative Q3 PMI data the manufacturing sector in Russia registered improving business conditions: in October the manufacturing PMI signalled output growth, mostly on account of expanding domestic demand.

To conclude: in September developments in wood industry substantially contributed to manufacturing growth, while output volumes in several smaller sub-sectors were volatile. Although the results of Latvia's industrial surveys cannot be interpreted unambiguously, confidence indicators still signal recovery in export markets that might have a favourable effect on the export-oriented sectors, inter alia, wood industry.