Wednesday , October 5 2022

Industry has experienced the weakest month since 2014. How do economists explain it?


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According to the data of the Central Statistical Office, production of industrial production in Latvia in this year, in the nine months of the previous year, according to calendar data, increased by 2.5% in constant prices. How do you rate this indicator, which is testified, explained and commented on by economists.

Linda Vildava, Swedbank Economist: Manufacturing is slowly growing

After a slightly faster growth in August, output growth in the manufacturing sector again slowed slightly to 2% in September (according to calendar data).

In September the volumes in the food industry continued to decline, with growth rates dropping from two-digit heights for the production of cars, trailers and semi-trailers. The wood industry continued to have a very good growth of 6%.

Production in nine months this year increased by 3.1%.

The Eurozone Manufacturing Purchasing Index shows the continued slowdown in growth at the start of the fourth quarter with prudence due to slower economic growth, trade strain, political uncertainty and rising costs.

Even fears of a possible decline in the euro area manufacturing industry at the end of the year are even worse if the situation does not improve. Some indications suggest that the distrust of the manufacturing industry in the eurozone could have been abandoned by Latvian entrepreneurs.

Although the lack of demand was almost always the most significant limiting factor for production, the importance of this factor has been steadily decreasing over the last two years. Last year, most business owners even said there was no inhibitory factor in production.

However, recent data suggests that the importance of insufficient demand has again increased slightly, but the share of companies that recognize that there is no disruption to production has declined.

Despite the slower growth and declining volume in some subsectors, the manufacturing industry continues to develop and positively contributes to the Latvian economy. Lower risk threatens future growth.

Peter Strautiņš, economist from Luminor: Industrial development becomes a theater of audiences with strong nerves

In September, production decreased significantly – by 1.5% compared to August, but annual growth was only 2.0%.

Reasons can be found both for the weaker growth of the euro area industry, as well as for the manufacturing industry and the subsector, depending on the individual "star" companies, as well as on the entire industrial growth, depending on the brightest sectors.

The largest branch in September was the strongest – wood processing (+ 6.1% per year), but food processing (-1.7%) was generally weak. Industrial Engineering was a major industrial development this year. In September, this industry group was rather the only actor.

The annual growth rate of electricity production was still exceptionally high at 35.6%, which exceeded the average of the previous year by 20.5%. Production of automotive parts is also worth it – in September, its performance in September increased by 8.6% compared to September, rising by 28.1% on average per year.

On the other hand, there was almost no increase in machinery and equipment (0.8%) in September, but even in the electronics industry (-4.9%).

It is safe to anticipate a very rapid revival of automotive parts production, as large companies in the industry are planning to expand. On the contrary, the risk of slow growth in machine and machine production is significant.

Only one of its leading companies (Caljan Rite Hite) over the years has achieved stable and rapid growth and reports of ambitious expansion plans by taking over some of Metallurg's former sites.

Electronics has long been the theater of the only actor in the sense that its dynamics is heavily dependent on one society that has generally been very successful, but the great history of history does not tend to be fair and just.

Stellar "syndrome" also takes over the subsectors of the food industry. In the dairy sector, the Union of Food Industry processes its share through the transfer of other companies. Rapid organic growth up to half grain processing allowed its share to increase to Dobele Dzirnavnieks.

However, this concentration is fastest concentrated on fish processing, which is caused by the rapid development of one company (Karavela) and the crisis of other producers, which can not overcome the consequences of embargo on sprat Russia. The management estimates that Karavela produces more than half of the total canned fish.

Furniture production is not so concentrated, but the share of the three leading industries – SWF, Kvist and Dailrada sources – is rising steadily. The pharmacy has long been a tandem of two leaders whose success is changing, but the long-term development curve is awake.

In general, this strength is favorable for development. A large scale in industry is a positive factor in productivity growth. These companies have money and human resources to capture export markets, they can afford to be patient.

Caravel's success allows us to predict that a three-year stagnation in fish processing is likely to be overcome in a few years. Last year, the company's turnover grew by 63% to 38.7 million, this year exceeding 40 million and the company is already repairing the premises for installing additional equipment.

Of course, there are risks. One company's problems can have a profound impact on the results of the industry as we see it at the moment. As for the three large sectors / groups of industries – food, wood and metals + machinery, they are generally strong teams of many strong actors.

In addition, the manufacturing industry as a whole accounts for only about 13% of the total value added, with exports increasingly helping the service sector. The industry is declining this year, while the export performance of services is very good.

Mārtiņš Āboliņš, economist "Citadele": September was the weakest month in Latvian industry since 2014

In September of this year, Latvian industry is the weakest month since 2014, and according to data published by the Central Statistical Office, production volumes in Latvian industry decreased by 1.2% over the same month of the previous year.

This relatively unexpected decline in September is linked more to one-off measures in the energy sector, with output being down 12.6% in September. However, there have been no encouraging trends in industry and only 2% increase in September.

This lags behind the overall economic growth of the economy this year, which almost unexpectedly reached almost 5% in the third quarter.

The biggest impact on industrial producers in September was due to a fall in energy, due to high fall rainfall in autumn and a very high increase in electricity production in Latvian hydroelectric power plants, which could not even account for an 80% increase in CHP electricity production this year.

In the coming months, this effect will no longer be so significant and therefore industrial production in Latvia should improve in the remaining months of the year.

The manufacturing sector, where the production volume in September compared to the previous year increased by only 2%, raises more concerns. Industry is heavily dependent on exports, and the situation in the world economy is no longer as enjoyable as at the end of last year and early this year.

In the third quarter of this year, euro area economic growth has fallen below and surpassed figures showing a global trade decline at the end of this year, while in Latvia in September almost all manufacturing growth in the manufacturing sector has provided only three branches: woodworking, electrical equipment and automobile production and automotive parts.

Compared to the same month of the previous year, wood processing increased by 6.1% in September, electrical equipment by 35.6% and cars and components by 8.6%.

The increase in wood production volume is probably contributed to a certain extent by the rapid rise in wood prices since last year, but since August wood prices have fallen sharply on the other side of the Atlantic, which means they can feel in Latvia in the coming months.

At the same time, the manufacturing industry suffered from food production (-1.7% in comparison with the previous year), computing and optical equipment (-4.9%) and installation and repair of equipment (-17.2%).

When I look at the remaining months of this year and next year, I'm rather cautious about the prospects for the manufacturing industry. This sector is increasingly facing a rapidly growing imbalance between wages and productivity, which has a negative impact on industry's profits and their ability to invest in development.

At the same time, the external environment is no longer as favorable as before, and in recent months the pace of industrial growth has also slowed down in Lithuania and Estonia, as well as in other parts of Europe.

The growth of production in Latvia in this year and next year is likely to be only slightly more than 3%, so the growth of the Latvian economy will depend on the internal factors over time.

FM: Industry declined in September and production continued to grow

Recent statistics show that industrial production in Latvia decreased by 1.2% in September compared to September of the previous year.

However, the growth recorded in the last two months was high enough to achieve positive growth in industry in the third quarter of 2018, with industrial output rising by 3% compared to the third quarter of last year.

Last September, industry growth was largely driven by strong growth in electricity and gas supplies, but this year the situation was reversed and the decline in industrial production was due to a decline in the industry.

If the energy sector rose by 37.4% year-on-year, thus creating a high base for this year, then in September this year the electricity and gas supply dropped by 12.6%.

The decline in the sector was due to a rapid drop in electricity production in hydropower plants (-84.1%), which was affected not only by the high base year of last year but also by atypical dryness in September this year, which resulted in particularly low water supply in Daugava.

Meanwhile, the production of cogeneration power plants in September was 79.6% higher than in the previous year, but these volumes were not enough to offset the poor performance of hydropower plants.

At the same time, production increased by 2.0% compared to September of the previous year. The situation in the subsectors differed but was essentially similar to that observed in previous months.

Already next month, the growth of production was determined by the largest subsector – the woodworking industry, which grew by 6.1% in September.

Significant growth continued in September in some mechanical engineering sectors, eg Year-on-year electricity production increased by 35.6% and car, truck and trailer production by 8.6%.

At the same time, the growth rate fell in machinery, machine tools and machine tools, whose output grew by only 0.8% in September.

It should be noted that at the end of this year, one of the largest companies in this sub-sector, the SIA "Trelleborg Wheel Systems Liepaja", plans to complete a production extension project by creating a center for manufacturing centers that will offer more than 100 employees over the next two years.

Given that there are several stable and export machines currently in Liepaja, there are favorable conditions for the further development of the city industry.

The increase in the volume of manufacturing industry was also recorded in the manufacture of textiles (+ 4.7% per year), manufacture of chemicals and chemical products (+ 4.5%), manufacture of rubber and plastic products (+4.3%) and other subsectors with lower growth volumes.

On the other hand, food production has collapsed again. In September, the fall in the production of this sub-sector by 1,7% was due to dairy production, which has been declining since last November.

At the same time, the leading dairy producers in Latvia report on ambitious investment plans, which should be reflected in milk and dairy production data, which could change current trends in the near future.

For example, Food Union has invested EUR 2.4 million in the purchase of four new production facilities, JSC Preiļu siers plans to invest EUR 8 million in the Cheledar production line, invest in expanding the JSC Tukuma piens plant and develop an eco-friendly product line. more than 10 million euros, while in the modernization of JSC "Smiltenes piens" plans to invest nearly one million euros.

A decline of 4.9% in September 2018 was also attributed to the production of computers, electronic and optical devices.

Last week, we heard about the decision of the European Investment Bank to approve long-term funding of EUR 10 million intended to support investments planned by Latvian electronic company AS HansaMatrix, which together amount to 20 million euros between 2018 and 2020.

These are massive investments and are expected to make a significant contribution to the development of the high-tech industry in Latvia. In September this year, production volumes also declined in beverage and clothing production, printing and reproduction of records, repairs of equipment and appliances.

related articles

The economic confidence indicator of Latvian entrepreneurs slightly improved in October this year. It should be noted that the level of trust was relatively high over the course of the year.

Meanwhile, the European Union index and economic sentiment of the eurozone declined in October but, as in September, the production growth of Latvian manufacturing production in the euro area was stronger than domestic and non-euro area growth, we can conclude that the demand for industrial products in Latvia remains the largest selling market stable.

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