Manufacturing still lacks notable growth

According to the data of the Central Statistical Bureau, the manufacturing output in November 2015 increased by a mere 0.7% month-on-month (seasonal effects excluded). Year-on-year, the amount of production output grew by 3.8%.

The situation in the industry remains to be very varied. If at the beginning of the year, when "KVV Liepājas metalurgs" began operations, it seemed like the industry would end the year with fat plusses, as the problems in metallurgy grew, these hopes had to be laid to rest. The amount of food industry output in the first eleven months of 2015 dropped by 5.3% year-on-year – a weaker performance than usual, but, of course the geopolitical background and the impact of sanctions must be taken into account (fishing industry was most affected). The construction materials branch continues to face moderate problems (-8.7%): its production output kept dropping throughout 2015. Gradual recession is continuing also in the wearing apparel manufacturing (-16.8%) while the producers of textiles (-6.0%) have managed to overcome the moderate decline in output at the beginning of the year, with the second half of the year looking up.

Good results were still observed in the production of computers, electronic and optical equipment (+39.6%), as well as furniture (+14.1%). The year end was also beneficial for the largest branch of manufacturing, wood industry (+6.3%), which, over the past few years, keeps increasing its production output.

The branch of electrical energy and gas supply deserve a special mention. If at the beginning of the year it seemed that the branch will have to post substantial output minuses, then the end of the summer and the fall turned out to be an extraordinarily good period. This was determined by the substantially increased output of electrical power in cogeneration, which was fostered by the relatively low prices of natural gas and the complicated situation in the electrical power market in Latvian and Lithuanian trading areas.  

In the fall months, wood industry posted new records as has recently become customary. The investments in the branch for purchasing new equipment and modernizing the technological processes have lived up to expectations. New markets have also been found, the product range has been expanded and, what's even more significant, a gradual transition to products with a higher added value is taking place. Slightly worrisome is the fact that for a number of consecutive years, it is wood industry that has been the engine of manufacturing growth. It becomes plain to see when we look at the proportion of wood industry in manufacturing. If in 2008, wood industry accounted for  20% of manufacturing output, in 2015, that proportion reached  27-28%. It means that Latvian wood manufacturing is greatly exposed to risks related to wood industry (price risks, new sanctions and other factors). If we add food industry (which has recently been losing its proportion because of sanctions), then the two branches together account for about 47% of total manufacturing output. Even though some manufacturing branches have experienced periods of good results over time, in the longer term, it is wood and food industries that have managed to retain their significance.

The November data of manufacturing mean that in 2015 the amount of its output is likely to have grown by about  4%. It is slightly less than previously predicted, mostly as a result of the weaker than expected performance of "KVV Liepājas metalurgs". Evaluating the currently available information (about two of the three months), it looks like the performance of the industry in the fourth quarter of 2015 may be rather weak. That could indicate a slightly lower than usual GDP growth in the fourth quarter of 2015.