Manufacturing has bloomed over summer but autumn is coming
There was no doubt that the manufacturing output would increase in July: such projections were based on the industrial confidence data which suggested that optimism was rapidly improving. What we did not expect, was the rather impressive growth rate that reached +4.1% compared to June and even exceeded the level of the previous year (1.8% increase year-on-year).
As to the manufacturing subsectors, the wood industry was the main contributor to growth (see Chart 1). Amid the COVID-19 pandemic, there was little talk about the challenges in the wood industry due to the damage caused by pest insects. In this regard, we have good news: insects, like many people in Latvia, did not like the weather in the spring and summer this year. We will not try to estimate how the weather affected the demographic activity of the people. As to the European spruce bark beetle, we know that its second generation was not very active; therefore, the forests have seen less damage this year. In the Central Europe, however, insects have continued to feast day and night.
Chart 1. Manufacturing output (year-on-year; %; contribution; percentage points) and industrial confidence (%)
As to the potential manufacturing performance in the coming months, it seems that the industrial confidence has faltered somewhat. Following the blooming optimism in the previous months, in August it deteriorated, albeit only slightly (see Chart 2). No wonder! Most likely, this is just the first sign signalling new challenges ahead. The daunting autumn is coming closer, raising concerns over the flu season and the second wave of the COVID-19. With more vicious outbreaks in the neighbouring countries, the virus is, once again, gaining strength. The number of countries whose visitors are subject to the self-isolation requirement has increased. The rising uncertainty over potential downtime, quarantine, supply chain disruptions and other encumbrances can affect both demand for manufacturing products and the production itself. Yet, there is reason to believe that the devil will not be as black as he was painted in the spring. This time, the world is better prepared to withstand it.
Chart 2. Industrial confidence indicator and select survey questions (%)