The rise in manufacturing output in April was the greatest since the end of 2012

According to the information provided by the Central Statistical Bureau, the amount of manufacturing output at constant prices rose by 2.7% in April 2015 (month-on-month, seasonal effects excluded). Year-on-year, the amount of production grew by 10.9%. A two-digit number in the year-on-year rate was last observed at the end of 2012. In terms of level, the April performance of the sector also sets a new record.

April is the month where the overall performance of the sector should be negative – the month-on-month output dropped in both of the largest sub-branches of the sector, wood industry (-2.3%, seasonally adjusted) and food industry (-2.2%). However, this was the month where other sub-branches posted notable rates of growth. Chemical production was a surprise (+54.6%; a new month-on-month output record). Yet, in all likelihood, this result does not point to a new and sustainable level of output by the sector – in previous years as well, output fluctuated greatly. The producers of electrical equipment also had a pleasant surprise in store (+19.9%; albeit the sector is suffering because of Russia's economic weakness). The producers of computers and electronic equipment (+7.5%), construction materials (+5.1%), and furniture (+5.8%) also had another good month. The relatively small branches likewise undergo quiet growth: the output of automobiles, trailers, and semitrailers saw a new record high in April. 

After its rather successful performance in April, the power sector experienced a small setback (-1.7%), yet year-on-year, the performance was still substantially improved (+6.0%).  

Seeing how positive was the impact of the resumption of work at  "KVV Liepājas metalurgs"  on the total output of manufacturing (after operating not even a full month), there was no doubt that the April result will be similar: working for a full month and gradually increasing its production capacities, its macroeconomic impact also grew. Over the last month, there has been much information in the mass media about the seemingly chaotic practices of the enterprise, hiring employees and shortly thereafter letting them go. It is hard to tell whether launching the operations at the steel-foundry shop was a part of its business plan or a move to urge more activity on the part of politicians in the context of the mandatory procurement component.  Yet even before the enterprise resumed work it was clear that this year will be difficult for it and so will the next one: the global situation in metallurgy continues to be complicated, with the demand and selling prices remaining low. Thus we are likely to see holes throughout the data of 2015.  

Besides metallurgy, two other pieces of news have been topical in the last month. The first is that Russia may close its market to the processed fish exports from Latvia and Estonia  (an official announcement has yet to be made, however). Meanwhile, the relevant authorities of China have certified the production of 11 Latvian fishing industry enterprises, thus opening the door to this wide market.  It is clear, however, that the scale of these events is different. Russia is the main market for the industry and it will be difficult to replace it quickly. The existing taste preferences of the consumers and the so-called sentimental demand must also be taken into account. At the same time, there is no reason to sound alarm bells regarding a macroeconomic tragedy in the fishing industry. All of the production of the Latvian fishing industry (including the part of it consumed domestically and exported to countries other than Russia) amounts to no more than 0.3% of GDP. In total goods exports in the first quarter of 2015 the exports of said production to Russia amounted to a mere 0.1% - in recent years, most of the fishing enterprises have managed to find other markets (which was of course accelerated by problems in the Russian market). The other piece of news suggests possible consolidation in the dairy industry – the wish expressed by "Food Union" to purchase "Rīgas Piensaimnieks" is a positive development from the point of view of export: industry consolidation is necessary to bolster the competitiveness of Latvian dairy industry. Yet a cause for concern is the ability of Latvian dairy farmers to deal with the impact of  "one market player". Namely, if dairy producers are consolidating, then dairy farmers should also do so, otherwise the prospects for dairy farmers are grim, for the purchasing price of milk is likely to continue on a downward trend.

The data published today are important also in the context of GDP projections. The comparatively weak data on the first quarter of this year as well as the unfavourable external background exacerbated the downward risks as far as the GDP projections for this year were concerned. Yet these latest industry data have helped to counterbalance these risks, giving rise to hope that the hitherto pronounced projections regarding economic growth this year will come to pass. If we are not in for new surprises in the coming months, that is.