07.07.2014.

Manufacturing output down in May

  • Līva Zorgenfreija
    Līva Zorgenfreija
    Economist, Latvijas Banka

According to the data of the Central Statistical Bureau (CSB) the manufacturing output in May dropped 0.7% month-on-month (seasonally adjusted data). Year-on-year, manufacturing output in May increased by 1.8% (working day adjusted data). Overall, industrial production grew month-on-month (0.3%), owing to growth in electricity, gas, steam and air conditioning (4.2%). Year-on-year, however, the power sector (minus 10.2%) continued to have a negative impact on total industrial output (minus 0.2%).

The month-on-month drop in manufacturing output in May was determined by a downturn in one of the largest sub-branches, food manufacturing (1.4%). The output of all product types dropped with the exception of processing of fruit and vegetables where output grew relatively fast and the manufacture of dairy products, which remained unchanged month-on-month. After a drop in April, manufacture of wood products posted a rise (1.1%) in output in May. The monthly growth trends of both of the largest sub-branches of manufacturing have been unstable since the beginning of the year, yet in year-on-year terms, output has continued to grow in both. Production output dropped also in the manufacturing of electrical equipment (10.0%) and fabricated metal products (4.4%). Manufacturing of textile products rose in May after dropping for three months, whereas the output of wearing apparel dropped. Overall, in the first five months of the year, both the output of textile products and wearing apparel fell considerably (minus 3.7% and minus 15.5% respectively), which at least in part is related to problems in the Russian market. The output in the metals sub-branch grew rapidly month-on-month, yet from a very low base. Moreover, even though AS "Liepājas metalurgs" discontinued production in May of last year, there has been no year-on-year increase in the output of the metals sub-branch, which is due to the previously mentioned problems in other enterprises in the sub-branch. Year-on-year, the manufacturing of computers, electronic and optical equipment, in addition to both largest branches, continued to be one of the greatest contributors to manufacturing sector growth.

The impact of the Russia/Ukraine crisis should be reflected in the turnover data of manufacturing. The manufacturing turnover in the first four months of this year grew year-on-year (3.5%). An 8.4% growth in turnover in the domestic market and only a slight drop in export sales (1.9%) were registered. The greatest drop in export turnover is seen in such sub-branches as wearing apparel, electrical equipment, as well as machinery and equipment. Since Russia is one of the greatest export partners in the above sub-branches, it is fair to suggest that these developments are at least in part due to the Russia/Ukraine crisis. On the other hand, in such branches as the production of chemical substances and foodstuffs where Russia is also among the largest export partners, substantial increases in export turnover were registered in the first months of the year. Therefore, one can conclude that the impact of the Russia/Ukraine crisis on Latvian manufacturing as of yet is not broad-based.

The fluctuating industry confidence indicators improved in June, but the Latvian Economic Sentiment Indicator (ESI) overall did not change. The survey data do not paint a very rosy picture of the situation in Latvia's main trading partners. In many countries, the confidence indicators aggregated by the European Commission have dropped, including Estonia and Lithuania. Furthermore, the Estonian ESI is among the lowest in the European Union (EU) and has been under its long-term average for the second consecutive month. In June, the confidence indicator deteriorated in the euro area while remaining almost unchanged in the EU.

The euro area Purchasing Managers Index (PMI) in June continued to signal expansion of activity, although the rate of growth has been slowing in the last few months. The German manufacturing PMI points to slower growth in the goods producing sector, whilst the Polish indicator already signals stagnation. The construction PMI in Germany showed a broad-based decline in activity in the construction sector. While in the United Kingdom the construction PMI continued to indicate growth. On the other hand, in Russia, the manufacturing PMI suggested a fall in activity for the eighth consecutive month, which in part can be related to the geopolitical crisis and, in part, to the slower growth in China which has been observed since the beginning of the year.

Confidence of at least some manufacturers could be improved by the news that the total financing for the fourth call of the programme "High Value-Added Investments" has been increased to 82.2 million euro, which means that more than 100 projects will receive the EU funds. Activity in this round has been higher than previously, and the resolution of the Cabinet of Ministers will stimulate even more businesses to invest in knowledge and/or technology-intensive projects. Given that the maximum support intensity in this programme is 45% of eligible costs, the planned investments in the economy in total could exceed 180 million euro. Even though a number of projects are probably not going to end up being implemented, this can still be considered an important positive push for investment growth and for a more rapid development of manufacturing in Latvia.

Illustration. Index of the physical amount of manufacturing (2010=100), seasonally adjusted and non-adjusted data 

Apstrādes rūpniecība

APA: Zorgenfreija, L. (2024, 28. mar.). Manufacturing output down in May. Taken from https://www.macroeconomics.lv/node/2028
MLA: Zorgenfreija, Līva. "Manufacturing output down in May" www.macroeconomics.lv. Tīmeklis. 28.03.2024. <https://www.macroeconomics.lv/node/2028>.

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