Manufacturing takes a half-step back in April

The manufacturing output volumes dropped 1.4% month-on-month in April (seasonally adjusted data at constant prices).

Based on the previously observed manufacturing change dynamic – to take a step ahead one month and to take half a step back the next -- a drop could have been expected in April after the substantial improvement in March (4.5%). A more serious basis for such expectations was provided by the fact that the industry confidence index deteriorated by 3.4 percentage points in April. Moreover, the good performance in March was fostered by the manufacturing of transport vehicles or shipbuilding, to be more precise, which is characterized by great fluctuation, and thus it seemed less than likely to maintain the production amounts in this branch in April.

What were the main drivers and hindrances regarding the manufacturing production? Year-on-year, the manufacturing production increased by 8.5%. The most rapid output increases in April were contributed by the manufacturing of chemical products (+30.6%), metals (+27.2%), fabricated metal products (+12.7%) and wood pulp and its products (+9.8%). Repairs and installation of machinery and equipment grew more than twofold. A drop, on the other hand, was observed in the production of pharmaceuticals (-15.4%), computers and electrical equipment (-10.6%) and wearing apparel (-7.2%). The manufacturing of other transport vehicles dropped 50.0%, which, because of the above contribution by shipbuilding, posted 180.4% growth in the previous month.

The Latvian May industry confidence indicator published by the European Commission points to a small improvement (by almost one percentage point). It is a positive development that after the substantial drop in April, the manufacturers have again posted a rise in orders and in the production expectations for the months ahead in May. Note that Latvia is among the very few European countries where an improvement in the industry confidence is observed. On the one hand, it is a boost to the overall mood because of the opportunity to stand out in a positive way. On the other hand, as the European businessmen and consumers sink ever deeper into depression, it does not bode well for the future trends in the external demand for our production. Already now, the improvement in the assessment of order-book levels has been primarily on account of domestic demand, with the evaluation of export orders remaining at the level of the previous month. To the end of achieving the industrial policy goals of the Government, a stable external demand is a must.