Manufacturing industry successfully begins the second half of the year

According to the data of the Central Statistics Bureau, the amount of manufacturing production grew 2.0% in July (seasonally adjusted data at constant prices). The year-on-year growth rate was also positive (4.2%). Apart from the impact of manufacturing, the overall industrial growth (+1.8%) was also due to growth in mining and quarrying (+6.2%), but it was reduced by the drop in the production of electrical power and gas supply (-1.1%). The July data are in line with the European Commission's (EC) monthly survey data, which pointed to an improved industry confidence in Europe and, to a lesser extent, in Latvia.

 Analysis at the sub-sector level shows that the trends closely mirrored the ones seen in previous months. The large manufacturing sub-sectors (production of foodstuffs, production of wood and articles of wood, metal production) fall short of posting substantial growth rates, whilst the smaller ones do register strong growth. The good news is that it is exactly the sub-sectors which have the highest value added with respect to output that are growing at the fastest pace. For instance, production of other transport vehicles posts impressive results at the beginning of the third quarter, growing by 32.5% month-on-month and increasing 3.6 times year-on-year. Production of computers, electronic and optical equipment  (32.1% month-on-month and 61.0% year-on-year); electrical equipment (17.8% month-on-month, 11.7% year-on-year); as well as automobiles, trailers and semi-trailers  (2.1% month-on-month, 12.5% year-on-year) have all registered noteworthy growth rates.

In the large sub-sectors, the situation is not as positive: foodstuffs manufacturing registered a month-on-month drop (-1.3%) accompanied by a slight growth year-on-year (1.9%). Production amount in the wood industry, has dropped 2.2% month-on-month while growing 1.8% year-on-year. The drop in the manufacturing of metals was substantial both month-on-month (-10.0%) and year-on-year (-72.0%). For pharmaceuticals, where the second half of the year is usually more successful than the first, only a  tiny month-on-month growth can be observed (0.1%), whereas there is a large drop in the year-on-year statistics (-21.2%). This does, however, slightly contradict the information published by the largest pharmaceutical companies,  indicating that the enterprises are increasing their turnover and profits as well as expanding their export markets and working actively on new product development.

Manufacturing growth has recently benefited from the situation in the export markets. The flash estimate indicates that the quarter-on-quarter growth in the euro area and EU-27 in the second quarter of 2013 has been positive (+0.3% in both), which was already indicated by the confidence and other leading indicators. In recent months, the news have continued to be largely positive, as both the ESI (Economic Sentiment Indicator)[1] and PMI (Purchasing Managers Index)[2] signal further economic recovery in Europe. The rapid improvement in the manufacturing PMI data of Great Britain and Poland merit a special mention; the manufacturing PMI in Germany also points to increased activity. The overall ESI as well as industry confidence has grown in the other two Baltic countries. In Lithuania, the increase has been particularly steep and industry confidence in august exceeded the 0 mark for the first time since July 2011. Worse news are coming from our eastern neighbour, Russia. The manufacturing PMI points to reduced activity for the second consecutive month, albeit the August data were slightly better than the July ones.

Latvia’s overall ESI as well as industry confidence deteriorated slightly in August. In the next months, Latvia will need the overall economic situation and especially the industrial and construction sectors of our largest trading partners to recover in order to sustain manufacturing growth.