Manufacturing in March grows despite worries, yet confidence worsens

Igors Kasjanovs
Igors Kasjanovs
economist, Latvijas Banka

The manufacturing dynamic in the last eight months has been like a predictable pendulum: one month, its production output grows and the next one it drops. March 2012 saw this trend continue with a   4.3% month-on-month growth according to the Central Statistical Bureau data (seasonally adjusted data at constant prices). The growth in March was determined by the growth in the production output of wood pulp and its products (+5.6%), metals (+28.1%) and other transport vehicles (+80.1%), which probably reflects the successful performance of shipbuilding. Owing to the rapid growth in January and March, the production output in the first quarter of 2012 thus increased by 3.5% quarter-on-quarter.

In the first quarter of 2012 overall, the manufacturing output volumes have increased quarter-on-quarter, in the production of  wearing apparel (+4.6%), wood pulp and its products (+2.0%), pharmaceuticals (+2.5%), metals (+27.5%), fabricated metal products (+10.8%), computers and electronic equipment  (+9.1%) as well as other transport vehicles (+27.5%). Production volumes have meanwhile dropped in the manufacturing of food products (-0.9%), textiles (-1.9%), chemicals, and electrical equipment (-12.4%).  It is interesting to compare the dynamic of the real manufactured production with that of its sales (in actual prices). The manufacturing production sales data currently cover only the first two months. These data, just as those on the manufactured production volumes point to contrasting trends in the first two months of the year – the manufacturing sales volumes in January grew 8.7%  month-on-month, seasonal factors excluded, whereas in February they dropped 5.7%. These fluctuations were the result of the export sales of manufacturing production – a 14.2% growth in January and an 8.4% drop in February. Yet, looking at sub-branches, the situation has varied over time: thus the sales data, if compared to the average month in 2010, exceed substantially the data on production volumes, which point to a rise in the sales prices. In many other sub-branches (wood-processing, chemical production, construction materials production) the situation is similar: the production volumes have grown slower than sales, primarily determined by an increase in export sales volumes. In some of the branches, however, (production of wearing apparel, fabricated metal products, pharmaceuticals) the situation is opposite – in these branches, the growth in the production volumes is more rapid than that in sales, which points to a possible utilization of competition in pricing.

In terms of manufacturing, it may be worth mentioning that in April the Ministry of Economy presented its industrial policy guidelines (for discussion and fine-tuning by the end of the year) and its vision of how the importance of manufacturing should be fostered in the economy.  The goal, a proportion of 20% in the GDP structure is nothing but ambitious, yet the guidelines and Minister Daniel Pavļuts's vision are worth considering. It would be important to institute the "horizontal approach" in aiding businesses, i.e. providing equal support to all that conform to a set of criteria.  This year saw the launch of the first important support mechanism, the construction of power connections for businesses whose absence was a source of complaint by entrepreneurs.

So far, manufacturing data have fluctuating, yet with an upward trend. Judging by talks with branch representatives and the confidence indicators surveyed by the European Commission (a 3.4 point worsening in April), a small drop in volumes may be the case in the coming months. Confidence indicators at the moment point to a drop in order volumes and representatives of some branches confirm that such a drop, albeit small, is already happening. In the year overall, manufacturing output will be more diversified than in previous years supported by the constantly growing production volumes in the sub-branches that follow the manufacturing leaders – wood processing, metals, and food industry.  

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