Manufacturing performs well in the second quarter

According to the information of the Central Statistical Bureau, the amount of manufacturing production in June 2015 dropped  by  2.2% month-on-month (seasonal factors excluded) whereas the annual rise has remained relatively fast at 4.4%. Thus in the second quarter of 2015 overall, the amount of manufacturing production has grown by 6.2% (year-on-year), which is the main reason for the improvement of the gross domestic product (GDP) growth rate in the second quarter of this year. 

In June, the drop in the amount of manufacturing production was determined by a drop in the chemical industry output (by 44.4% month-on-month), which resulted from the high base of previous months, when a greater amount was produced in one of the branch enterprises for one, larger-scale shipment of the finished product. Another source of a negative impact on the branch overall was also the weak performance in construction material production (-6.8%), which gives rise to some worry regarding the expected construction sector data.  A small drop was experienced also in the food industry (-0.8), which, given the developments in the industry (the sanctions-related problems in the fishing industry, problems in the dairy industry) is hardly surprising. Meanwhile, after a two-month downward trend, the performance of wood industry was once again positive (+1.9%). July was likewise favourable in the "hi-tech" end of Latvian manufacturing: the output volumes grew in the production of computers, electronic and optical equipment (+14.4%), electronic equipment  (+6.4%), various mechanisms and equipment (+7.4%), as well as in the production of automobiles and trailers (+9.6%). Judging by the results of other branches, in metals, June was in the minuses. Information circulating in the mass media suggests that, albeit with problems, "KVV Liepājas metalurgs" is continuing operations. It can be concluded that the first months of its operations must have been very energetic (enough production was apparently manufactured for storing it in warehouses) to be followed by a slight drop in production. The month was relatively hopeful also in the power industry (+2.3%).

As for the second quarter overall, it turned out more positive for manufacturing than could have been expected. To a considerable extent it was of course determined by the resumption of work at "KVV Liepājas metalurgs", however, growth rate is positive in a substantial part of industries. A negative annual growth rate remained for the most part in branches that are directly or indirectly exposed to the consequences of the sanctions or the weakness of the Russian rouble. It will hardly be anything new if I say that any further growth of manufacturing will depend on developments in the external environment. At the moment there are signs that point to the economy of the euro area becoming stronger, which, in the medium term, could have a positive impact on Latvian industries. The situation for those enterprises that are active in the Russian market meanwhile remains very nervous, particularly because of the unpredictable future.

I must mention that the manufacturing indicators of previous months have been slightly adjusted. The previously very optimistic figures for April and May have been reviewed and adjusted respectively from 10.9% and 8.5% to 8.2% and 6.0%. That explains why in last week's flash estimate of GDP the contribution of manufacturing was so low. The manufacturing data of the first six months indicate that in 2015 the total amount of manufacturing production could increase by 4-6%, which is even faster than earlier projections.