Slight growth in manufacturing in February

According to the data of the Central Statistical Bureau, the amount of manufacturing production at constant prices grew by 0.7% (seasonally adjusted data) in February of 2015. Year-on-year, the amount of production increased by 1.6%. This relatively positive manufacturing dynamic was overshadowed, however, by the weak performance of the power industry. Because of the untypically warm weather, its output remained low also in February: the year-on-year drop was at 11.5%.

In February, the month-on-month growth in manufacturing output was ensured by the increase in the production output in the wood industry (+2.7%; another record, yet the growing stock levels indicates that in the coming months, the increase may not be as fast), production of construction materials (+2.5%), chemical industry (+4.7%), furniture production (+5.6%), and metal production (+33.4%). The latter industry is very unsteady, yet it is possible that the February data already include the resumption of work at the "KVV Liepājas metalurgs" factory: it was in February that test production was resumed. Meanwhile, a negative contributor to the total manufacturing output was the food industry (-3.1%; the greatest monthly drop in the industry in the last year), as was the production of textiles (-4.2%) and wearing apparel (-12.8%; in both branches, the year-on-year drop in output thus exceeds 20%), the production of computers, electronic and optical equipment (-8.0%; with the year-on-year rise still very high 98.9%), as well as the production of mechanical equipment (-8.9%). With the relatively favourable weather holding, mining and quarrying was able to post a  10.8% year-on-year output increase in the first two months of the year. The trend of pronouncedly weaker results in branches that are now or historically have been tied to the Russian market still held.

To describe the performance of manufacturing in the past three years, the word "stagnation" has been used – its output (in real terms) has been fluctuating at about the same level. Any further increase in output was limited by the situation in the external markets – both the weak growth in euro area countries and the geopolitical situation to the east of us. Currently the situation is gradually improving as is suggested by a number of pieces of news favourable to the industry. The resumption of operations at "KVV Liepājas metalurgs" will undoubtedly leave its mark on the total numbers characterizing the industry already in the next few months: a positive impact will be made by the enterprise and those businesses that provide their goods and services to "KVV Liepājas metalurgs" will also benefit. The latest macroeconomic indicators of the euro area countries also give rise to a hope that in the second half of the year, Latvian entrepreneurs could feel a more stable rise in demand from the euro area. The investments initiated and made last year also indicate that this year manufacturing output could grow.

Yet a fly in the ointment is the confidence indicators aggregated by the European Commission that point to a more pessimistic industry confidence. The indicator is at its lowest level since the beginning of 2010. It results from a worse than before evaluation of order volume and outlook on the output level of the coming months. The stock levels of fabricated production have also risen (of the largest branches, particularly in the wood industry). Even though confidence indicators cannot always explain the month-to-month changes in manufacturing output, they are rather useful in pointing to trends. Thus a slight drop in the output amounts in the next few months cannot be excluded.

This points to the fact that just as before, manufacturing is very varied in essence. There are some sub-branches (e.g., the producers of electronics) that do not feel or hardly feel the consequences of the geopolitical events.  Most industries, however, face negative effects more or less directly. Thus in all likelihood we will be able to talk only about moderate growth in 2015. Any success in the industry will to a very great extent depend on the performance of "KVV Liepājas metalurgs". Depending on how fast the resumption of work is continued, rate of the year-on-year growth of the entire industry could increase by 3-4 percentage points.