Manufacturing grows thanks to the largest sub-sectors

According to the Central Statistical Bureau, the production output of manufacturing (seasonally adjusted data at constant prices) increased in November by 2.1% (m/m). The annual growth rate of manufacturing was also positive (2.6% – the second largest growth in 2013). The growth of Latvian manufacturing in recent months contrasts the rather moderate growth of this sector over 2013. Primarily because of the production halt at "Liepājas metalurgs" the sector grew only 0.4% in the first 11 months of 2013 as compared to the same period last year. 

 The growth of manufacturing in November was promoted by the large sub-sectors, including the production of fabricated metal products (16.5% m/m; 12.3% y/y). The largest enterprise of the subbranch, "Severstaļlat", announced earlier this year that more fabricated products have been manufactured than ever before.  Similarly, wood industry registered substantial growth in November (3.4% m/m; 6.6% y/y). Indeed, the Purchasing Managers Index (PMI)[1] data for November had pointed to a growing construction market in the largest Latvian wood production export partners, Germany and the United Kingdom. The last time the British construction market grew as fast as in November was before the crisis, in August 2007. Despite the fact that almost three quarters of the wood production are sold in the export markets, branch experts emphasize that the domestic market is very important for the growth of local enterprises. The development of new products requires the local market where these products can be tested and improved, and only subsequently exported. Wood businesses therefore hope for further improvements not only in the exports partners', but also in Latvia's construction market, and particularly for a more rapid growth in the construction of private housing in Latvia.

The food sub-branch, which, in contrast to the overall manufacturing, has yet to achieve pre-crisis output volumes, grew substantially in November (2.1 % m/m; 10.3% y/y). In 2013, it is likely to have been the main positive contributor to manufacturing growth. Moreover, an increasingly large part of the food branch production is sold as exports (33% in the first 3 quarters of 2012, compared to 35% in the first 3 quarters of 2013). However, 2013's fastest growing branch, i.e. computers, electronic and optical equipment (22.2% in the first 11 months), posted the greatest drop in output in November according to the seasonally adjusted data: - 26.4%.

Although December confidence indicators for Latvia and Europe are yet to be released, the December manufacturing PMI data pointed to further growth in the euro area, with the final quarter of 2013 showing the best result in the last two-and-a-half years. Particularly positive manufacturing PMI development has been observed in two of the very important markets for Latvia, namely, Germany and the United Kingdom. Russian manufacturing PMI in December, on the other hand, pointed to the worst situation in the last four years (since December 2009).

In conclusion we can expect that manufacturing in 2013 overall is likely to post a very small year-on-year growth, which, in and of itself is not an outstanding result.  Yet, taking into account the fact that this year we "lost" our largest manufacturing enterprise, the performance of the industry can be assessed as good.