The industry has suffered from the weakest month since 2014. How do economists explain it?


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According to Statistics Finland, Latvian industrial output during the year under review in nine months from the previous year according to the calendar plans has increased by 2.5% at constant prices. How do you evaluate this indicator, which economists demonstrate, explain and comment on?

Linda Vildava, Swedbank Economist: Production is growing slowly

After somewhat faster growth in August in September, production growth in the manufacturing sector slowed slightly to 2% in the year (according to calendar corrected data).

In September, the volumes of the food industry continued to decline, while the growth rate declined from two-digit levels to the production of cars, trailers and semi-trailers. The wood industry has continued to grow quite well by 6 per cent.

Production output grew by 3.1% over nine months.

According to the euro area manufacturing leader's index, growth slowdown continues at the beginning of the fourth quarter cautiously due to slowdown in economic growth, trade tensions, political uncertainty and rising costs.

A possible decline in the euro area manufacturing sector at the end of the year worries even worse if the situation does not improve. Some signs suggest that Latvian entrepreneurs have abandoned the mistrust of the euro area manufacturing industry.

Although inadequate demand has almost always been the most significant limiting factor in production, the importance of this factor has declined steadily over the last two years. In the last year, most entrepreneurs even mentioned that production is not an obstacle.

However, recent data suggest that the importance of inadequate demand has increased slightly, but the share of companies that recognize the lack of production has diminished.

In spite of slower growth and reduced volume issues in some areas, the manufacturing industry continues to grow and make a positive contribution to the Latvian economy. Disadvantages threaten future growth.

Peter Strautiņš, Luminor's Economist: Industrial Developments Become a Theater for Strong Nervous Viewers

In September, the production rate dropped significantly – 1.5% compared to August, but the annual growth was modest 2.0%.

The reasons can be seen both in the weak growth of the euro area industry, industry and subsector, depending on individual "star" companies and all industrial growth, depending on its brightest sectors.

In September, the largest industry was generally strong – wood processing (+ 6.1% per annum), but food processing (-1.7%) was generally weak. The most significant industrial development of this year has been mechanical engineering. In September this sectoral group was rather an actor theater.

The annual growth rate of electrical equipment was exceptionally high at 35.6%, an average of 20.5% over the previous year. Equally useful is the production of auto parts – its production in September rose by 8.6% in September compared to September, an average increase of 28.1% a year.

On the other hand, manufacturing machinery and equipment did not increase almost in September (0.8%), but in the electronics industry (-4.9%).

It can be quickly predicted a rapid recovery in the production of automotive components as large companies intend to expand. On the other hand, slow growth in machinery and machinery production is significant.

Only one of its Top 6 companies (Calian Rite Hite) has achieved steady and rapid growth over the years and reports ambitious expansion plans by taking part in Metallurg's former premises.

Electronics has long been the only actor theater in the sense that its dynamics depend heavily on one company that has generally been very successful but the major lines of history are usually not direct and fair.

Stellar "Syndrome" also takes subcategories of the food industry. In the dairy sector, the Food Agency will increase its share through other companies. Rapid organic growth up to about half of the grain processing allowed its share to rise to Dobele Dzirnavnieks.

This focus, however, focuses on the rapid processing of fish, guided by the rapid development of one company (Karavela) and the crisis of other manufacturers that can not overcome the consequences of the Russian sprat export ban. The company's management estimates that Karavela is already producing more than half of the total number of canned foods.

Furniture production is not so concentrated, but also the share of three industry leaders – Sources SWF, Kvist and Dailrada – are growing steadily. The pharmacy has long been a two-leader tandem, whose success is variable, but the long-term development curve is on the rise.

Generally, this concentration of forces favors development. A large-scale industry is a positive factor in productivity growth. These companies have the money and human resources to capture the export market because they can afford to be patient.

Caravel's success allows us to predict that the three-year stagnation of fish processing will probably improve in a few years. Last year, the company's net sales increased 63 percent to 38.7 million, this year it exceeds 40 million and has already repaired the premises for mounting accessories.

Of course, there are also risks. One of the company's problems can have a profound impact on the results of the whole industry as we are seeing at the moment. However, with three large sectors / sectorial groups – food, wood and metal + machines – they usually have strong forces with many strong players.

In addition, total industrial output is only about 13% of total value added and exports are increasingly exported to the service sector. Industry falls this year, while the export of services is very good.

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

September this year has been the weakest month in Latvia since 2014, and Latvian production volumes have fallen by 1.2% compared to the corresponding month of last year, according to information published by Statistics Finland.

The relatively unexpected decline in September is more related to one-off costs in the energy sector, with production volumes falling by 12.6 per cent in September. However, there are not very encouraging trends observed elsewhere in the industry, and in September, production increased by only 2%.

It is far from the general economic growth this year, which was surprisingly nearly 5% in the third quarter.

The biggest impact on industrial producers in September was caused by the decline in energy due to the high rainfall in autumn and the very high growth in electricity generation in the Latvian hydroelectric power plants, which this year could not compensate for electricity generation up to 80%.

In the coming months, this effect will no longer be so strong, and Latvia's industrial output should therefore improve during the remaining months of the year.

However, the production sector, where production volume grew by only 2% in September compared with the previous year, is a bigger concern. The sector is heavily dependent on exports, and the world economy is no longer as comfortable as it was at the end of last year and early this year.

In the third quarter of this year, the economic growth in the euro area has fallen and exceeded the figures showing global contraction at the end of this year, whereas in Latvia in September almost the entire growth in manufacturing was due to only three sectors: wood processing, electrical equipment and automotive and automotive components.

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

Growth in wood processing production is also likely to have contributed to a sharp increase in wood prices since last year, but since August, wood prices on the other side of the North Atlantic have declined sharply, which means they can feel Latvia in the coming months.

At the same time in September, food production suffered from food production (-1.7% on the previous year), computers and optical equipment (-4.9%), and equipment installation and repair (-17.2%).

The remaining months of this year and the following year are looking at the rather cautious prospects of the manufacturing industry. There is an increasing imbalance between wages and productivity, which negatively affects industry's profitability and the ability to invest in developing countries.

At the same time, the external environment is no longer as positive as before, and in recent months the slowdown in industrial growth has also slowed down in Lithuania and Estonia and elsewhere in Europe.

Consequently, the growth in Latvian production this and next year is likely to be slightly above 3%, so the growth in Latvia's economy will depend more on internal factors.

FM: Industrial decline fell in September as manufacturing continued to grow

Recent statistics show that Latvian industrial output in September this year decreased by 1.2% compared to the previous year.

However, the growth of the last two months was sufficient to allow the industry to grow favorably in the third quarter of 2018 and industrial output grew by 3 per cent from the third quarter of the previous year.

In September, industrial growth was strongly influenced by the strong growth in demand for electricity and gas, but this year the situation reversed and the decline in industrial output was due to the weakening of the industry.

If the energy sector grew by 37.4% yoy in September, thus creating a high level for this year, in September this year, electricity and gas supply declined by 12.6%.

The decline in the industry was due to a rapid decline in electricity generation in hydroelectric power plants (-84.1%), which was affected not only by the high base year levels of last year, but also by the non-typical drought in September of this year, as a result of which Daugava water supply has been particularly low.

The production of CHP plants in September was 79.6% higher than last year, but these quantities were not sufficient to offset the poor performance of hydroelectric power plants.

At the same time, the production rate increased by 2.0% compared to the previous year's September. The situation of the subsectors has changed, but mostly similar to the previous months.

Growth rate of growth in the next month was the largest sub-sector wood industry, with 6.1% growth in September.

For example, in certain sectors of the mechanical engineering industry, good growth continued in September, for example, the annual output of electrical equipment grew by 35.6% and production of cars, trailers and semi-trailers by 8.6%.

At the same time, the growth rate fell in the production of machines, machines and work machines, whose output grew by only 0.8% in September.

It should be noted that at the beginning of this year one of the biggest companies in SIA's "Trelleborg Wheel Systems Liepaja" intends to manufacture a production expansion project by creating a bicycle center production center that will provide more than 100 employees over the next two years.

Given that Liepaja currently has a number of stable and export-oriented engineering companies, the conditions for the development of the city's industry are favorable.

Production volume grew in September (+ 4.7% per annum), in the manufacture of chemicals and chemical products (+ 4.5%), in the manufacture of rubber and plastic products (+ 4.3%) and in other sub-sectors with lower volume growth.

On the other hand, production shrinkage was again reflected in food production. In September, the decline in production in this sub-sector by 1.7% was the production of dairy products, which has declined since November last year.

At the same time, Latvian dairy farmers report on ambitious investment plans that should be reflected in milk production data by changing the trends that have emerged so far.

For example, Food Union has invested EUR 2.4 million in acquiring four new production facilities, JSC Preiļu siers plans to invest EUR 8 million in the Cheledar production line, investing in the expansion of the JSC Tukuma Piens plant and the development of an ecological product line. more than 10 million euros, while JSC "Smiltenes Piens" is going to invest nearly one million euros in modernization.

The fall of September 2018 to 4.9% also related to the production of computers, electronic and optical devices.

Last week, we heard from the European Investment Bank's decision to approve EUR 10 million in long-term funding to support investments by Latvian electronics company AS HansaMatrix, totaling EUR 20 million in 2018-2020.

These are huge investments and are expected to have a significant impact on the development of high technology in Latvia. In September this year, production volumes also declined in the manufacture of beverages and clothing, in the repair of print products and equipment, and in equipment and equipment.

Related Articles

The Latvian businessman's economic confidence indicator in October this year has slightly improved. It should be noted that the level of reliability has been relatively high throughout the year.

At the same time, the European Union index and the euro area economic phenomenon weakened in October, but in September the growth in the output of the Latvian manufacturing industry in the euro area was stronger than growth in the domestic market and outside the euro area, we can conclude that demand for industrial products manufactured in Latvia remains stable in its largest markets.


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