07.07.2015.

Manufacturing growth subsided for a moment in May

  • Igors Kasjanovs
    Igors Kasjanovs
    economist, Latvijas Banka

According to the data provided by the Central Statistical Bureau of Latvia, the volume of manufacturing output in May 2015 decreased by 1.9% in comparison with April. Meanwhile, growth rate remained quite strong (8.5%) compared to May 2014.

A slight decline in manufacturing output was expected in May. Data for April were so very optimistic that only an unexpected turnaround could contribute to an upward trend also in May. According to projections, manufacture of chemical substances saw a negative growth rate of –14.1% in May; the consignment of finished goods was larger in the previous month. Similarly, the positive effect of launching the operation of JSC "KVV Liepājas metalurgs" also diminished, even though dynamics of annual changes still clearly reflect it. The enterprise has reached a certain working capacity level and keeps it unchanged for the time being. Although the last month witnessed much speculation about future operation of the enterprise, recent information suggests that it has paid the debt to energy suppliers and continues production only in the rolling mill facility, as initially expected. The slight decrease (–1.5%) in wood industry output is also no surprise; I already wrote about this development trend in previous months. Currently end markets of product sales face overproduction, which means that demand for these products can recede. The recent weak development (–0.2%) of the food industry is not unexpected, taking account of the economic situation in the region.

The energy sector saw a slowdown (–0.3%) once again in May following two months of relatively successful development. From the production point of view, it can be projected now that the year 2015 will be modest for the energy sector (unless, of course, the next winter starts early and is particularly cold).

Despite very good output indicators, other indicators describing the situation in the industry raise some concerns. The industrial confidence indicator aggregated by the European Commission was rather low in the first half of 2015, i.e. –6.8 points on average. Such a low indicator for such a long period was last seen in 2010 when the country was emerging from the crisis. The industrial confidence indicator deteriorated due to both weaker order assessment and output forecast. The inventories of finished goods also remained high which possibly point to sales problems. Sales in nominal prices lag behind industrial output in constant prices. This means that stocks of finished goods accumulate or the sales price declines. At the same time, the euro area industrial sector produced relatively good results in the first half of the year. Output augmented, although slightly (by 0.7% in the first quarter of 2015 and by 0.5% in April). The industrial confidence indicators of the euro area improved somewhat, although they were still in negative territory.

As I have already mentioned, the slightly negative manufacturing output indicators in May were already expected. Therefore, from the point of view of economic outlook, there is no reason to be very concerned. The second quarter will have been successful both for manufacturing and also likely for the economy as a whole. Such a result complies with the GDP forecast for 2015 (2.0%) by Latvijas Banka. 

APA: Kasjanovs, I. (2024, 28. mar.). Manufacturing growth subsided for a moment in May. Taken from https://www.macroeconomics.lv/node/1957
MLA: Kasjanovs, Igors. "Manufacturing growth subsided for a moment in May" www.macroeconomics.lv. Tīmeklis. 28.03.2024. <https://www.macroeconomics.lv/node/1957>.

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