Rebirth of metallurgy helps to improve the manufacturing situation

As evidenced by the Central Statistical Bureau (hereafter, CSB) data, the manufacturing output (in constant prices) increased by 7.6% in March (month-on-month, seasonally adjusted data). Year-on-year, the output amount increased by 7.1%. Thus in the first quarter of 2015, manufacturing output increased by 2.9% (quarter-on-quarter).

In Mach a very good result was also achieved in wood processing – the output remained practically at the same level as in the previous month (-0.1%), when output was at a record high. The other largest sub-branch, food industry, also posted good results: owing to the increase in meat and fish processing output, it posted a considerable month-on-month growth (+4.1%). An important factor, explaining the relatively fast overall growth of the industry, could be the fact that in March, faktors, manufacturing was partially resumed at "KVV Liepājas metalurgs" in March. Unfortunately, the CSB has, for the time being, closed the file also on the data of the metal industry (along with those of pharmaceuticals and other transport vehicles; making the data secret is related to the fact that only one or very few large enterprises are active in the industry. That means that the macroeconomic data suggest their performance). That prevents us from determining the effect of the resumption of operations at said factory with any precision. In all likelihood, it is primarily because of the "KVV Liepājas metalurgs" that we can expect quite a bit of "seesaw action" in both the month-on-month and year-on-year change in the statistics of the coming months. An unexpectedly good month was passed in the manufacturing of equipment and mechanisms (+21.7%; the year-on-year rate was still negative, however, at  -7.0%).

The drop in the amount of construction material production should be mentioned among the negative surprises (-10.1%). Right now, it only concerns one month, but the signal is bad, for the output of the branch usually indicates the expected construction activity in the near future. A small surprise is the good performance of the power industry in March (+14.9%) – if a month-on-month rise could have been expected because of a base effect, the year-on-year rise (+12.3%) is somewhat of a surprise because the average temperature in March, according to the CSB data, was the same both years. An explanation for the result was the higher than previous output of power at the hydroelectric plants. It may be related to the fact that this year flooding began slightly earlier than usual. Overall, in the first quarter, the output of power compared to the corresponding period of the  previous year (which also was comparatively unfavourable for the nindustry) dropped by 7.7%.

A positive development is the fact that, in addition to "KVV Liepājas metalurgs", several other enterprises will launch their factories or new production lines this year  (as a result of investments made in 2014; mastering the EU funds from the previous planning period is also still continuing).  Yet the situation has not changed: the industry is still suffering from the consequences of the geopolitical tension (sanctions; weakness of the Russian rouble, which, however, has strengthened somewhat recently) and the uneven economic growth in the euro area. The numbers of euro area manufacturing are still unimpressive: a reduction of output volumes in January by 0.7% and an increase therein in February by 1.2%. Some preliminary indicators (ESI, PMI) however point to a possible increase in output volumes in the coming month that could provide a positive impetus to the Latvian manufacturers.

In terms of statistics, manufacturing will definitely grow this year as a result of the resumption of work at "KVV Liepājas metalurgs". The situation with this enterprise itself, however, is not entirely clear. Its successes and failures depend on the activities in the construction market of the region. Construction in Europe keeps stagnating – at least for now – and that determines the prices of metals and their products in the region.  The same kind of tense situation will prevail in the industries whose production is directed at Russia. There is no denying that many enterprises have been very active, trying to reorient themselves to other, more reliable sales markets. Yet there are enterprises (particularly, the producers of power equipment and textiles; some producers of foodstuffs and some producers of pharmaceuticals) whose integration with new markets is complicated and is taking more time. The "rush" of the wood industry is likely to slow down sooner or later; the stores of fabricated production are growing both here and at its end points, the storage facilities at the sales market. Even though the results of the month of March are extremely good, in evaluating any further development of the industry, one should keep moderate caution: should the "minuses" coincide in several sub-branches, in the coming months we can expect an equally great drop.