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



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According to the Central Statistical Office, this year industrial production in Latvia increased by 2.5% at constant prices in the first nine months of the year compared to calendar-adjusted data. How do you evaluate this indicator, as evidenced, explained and commented by economists.

Linda Vildava, Swedbank Economist: Production continues to grow slowly

After a slightly faster increase in August, production growth in manufacturing in September again slowed slightly to 2% during the year (according to calendar-adjusted data).

In September, the volume in the food industry continued to decline, while the growth rate dropped from two-fold to the production of cars, trailers and semi-trailers. The wood industry continues to grow quite well at 6%.

In the first nine months of this year, production increased by 3.1%.

The euro area purchasing managers' indicator reports continued growth slowdown at the beginning of the fourth quarter, with caution due to slower economic growth, trade tensions, political uncertainty and rising costs.

Even worries about a possible fall in the manufacturing industry in the euro area at the end of the year is even worse if the situation is not improving. Some signs indicate that Latvian entrepreneurs have abandoned the mistrust of the manufacturing industry in the euro area.

Although insufficient demand has almost always been the most important constraint in production, the importance of this factor has steadily decreased over the last two years. In the last year, most entrepreneurs even mentioned that there is no inhibiting factor in production.

Recent data show that the importance of insufficient demand has again increased slightly, but the share of companies that recognize that there are no disruptions in production has declined.

Despite slower growth and falling volumes in some subsectors, the manufacturing industry continues to grow and positively contributes to the Latvian economy. Negative risks for future growth.

Peter Strautiņš, economist at Luminor: Industrial development becomes a theater for viewers with strong nerves

In September manufacturing production decreased considerably – by 1.5% compared to August, while annual growth was modest by 2.0%.

The reasons for such a weak growth in the industry in the euro area and the processing industries and subsectors depend on individual "old" enterprises, as well as on all industrial growth, depending on the brightest sectors.

In September, the largest sector was usually strong – woodworking (+ 6.1% per year), and in general food processing (-1.7%) was weak. This year's major industrial development was mechanical engineering. In September this sectoral group was quite a theater of one player.

The annual growth rate of electrical equipment production was still exceptionally high at 35.6%, which exceeded the average in the previous year of 20.5%. The same is true for the production of automotive parts – production in September September compared to September increased by 8.6% and on average increased by 28.1% annually.

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

One can safely predict a very fast recovery in the production of automotive parts, as widespread large companies in this sector are planned. Conversely, the risk of slow growth in the production of machinery and machinery is important.

Only one of its Top 6 Companies (Caljan Rite Hite) has achieved steady and rapid growth over the years and reports on ambitious expansion plans by taking over some of Metallurg's previous premises.

Electronics has long acted as one acting theater in the sense that its dynamics strongly depend on one company, which was generally very successful, but the great lines of history are not tilted and fair.

The star "syndrome" is also assumed by the subsectors of the food industry. In the milk processing sector, the Union for Food increases its share of the transfer of other businesses. Rapid organic growth up to about half of the processing of cereals has allowed its share to increase to Dobela Dzirnavnieks.

However, this concentration focuses the fastest on fish processing, led by the rapid development of one company (Karavel) and the crisis of other producers that can not overcome the consequences of the embargo on Russian sprat. The company's management estimates that Karavella already produces more than half of the total quantity of canned fish.

The production of furniture is not so concentrated, but also the share of three leading manufacturers – SWF, Quist and Dailrad – are gradually increasing. The pharmacy has long been a tandem of two leaders whose success is variable, but the long-term development curve is up.

In general, this concentration of forces is favorable for development. A large scale in the 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.

The success of Caravel allows us to anticipate that a three-year stagnation of fish processing will probably be exceeded in a few years. The company's turnover increased by 63 percent to 38.7 million euros last year, exceeding 40 million euros this year, and the company is already repairing premises for the installation of additional equipment.

Of course, there are also risks. The problems of one company can have a strong impact on the results of the entire sector, as we see at the moment. However, with respect to three large sectors / groups of sectors – food, wood and metals + machines, they generally have strong groups of many powerful actors.

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

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

In September this year was the weakest month in the Latvian industry since 2014, compared with the same month of the previous year, the volume of production in the Latvian industry fell by 1.2%, the Central Statistical Office reported.

This relatively unexpected fall in September is more related to one-offs in the energy sector, where production volumes declined by 12.6% in September. However, they did not notice very encouraging trends elsewhere in the industry, while in September production increased only by 2%.

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

The biggest impact on industrial producers in September was caused by a drop in energy, which was due to high precipitation in autumn and a very high increase in electricity production in Latvian hydroelectric power stations, which this year could not replace even an 80% increase in electricity generation in the TE-TO .

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

However, the manufacturing sector, where production volumes in September increased only by 2% compared to the previous year, is a bigger problem. The sector is strongly dependent on exports and the situation in the global economy is no longer as pleasant as at the end of last year and at the beginning of this year.

In the third quarter of this year, economic growth in the euro area fell and exceeded the figures indicating the contraction of world trade at the end of this year, while in Latvia in September almost the entire increase in the manufacturing industry was provided by only three sectors: timber processing, electrical equipment and production of cars and automotive parts.

In comparison with the same month of the previous year, the processing of timber increased by 6.1%, electrical equipment by 35.6%, cars and their composition by 8.6%.

Increased production volume in wood processing is probably also contributed by the rapid rise in wood prices since last year, but since August, prices of wood on the other side of the Atlantic have started to fall sharply, which means they can feel in Latvia in the coming months.

At the same time, in September, the manufacturing industry suffered from food production (-1.7% compared to the previous year), computer and optical devices (-4.9%), and assembly and repair of equipment (-17.2%).

Looking at the remaining months of this year and next year, I am quite cautious about the possibilities for the processing industry. The sector is increasingly facing a rapidly growing imbalance between wages and productivity, which has a negative impact on the profits of the industry 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 rate of industrial growth slowed down in Lithuania, Estonia and elsewhere in Europe.

Therefore, the production growth in Latvia will probably be slightly more than 3% this year and next year, and the growth of the Latvian economy will depend on the internal factors of time over time.

FM: Industrial decline in industry fell in September, and production continued to increase

Recent statistics show that industrial production in Latvia fell by 1.2% in September compared to September of last year.

However, the growth recorded in the last two months was high enough to achieve positive growth in the third quarter of 2018, where industrial production increased by 3% in comparison with the third quarter of last year.

Last September, industrial growth was largely the result of a strong increase in electricity and gas supplies, but this year the situation has changed, while industrial production fell as a result of the sector's downturn.

If the energy sector was 37.4% yoy in September, and this year it created a high base, electricity and gas supply fell by 12.6% in September.

The decline in the sector was marked by a rapid decline in electricity generation in hydroelectric power plants (-84.1%), which was influenced not only by the high base year of last year, but also by atypical drought in September this year, due to which water supply in Daugava low.

In September, the production of CHP plants increased by 79.6% compared to last year, but this volume was not enough to offset the poor capacity of hydroelectric power plants.

At the same time, production increased by 2.0% compared to September of the previous year. The situation in the subsectors differed, but they were generally similar to the trends recorded in previous months.

For the following month, the biggest growth in manufacturing was determined by its largest subsector – timber industry – by 6.1% in September.

Good growth continued in some mechanical engineering sectors, for example, the annual output of electrical equipment increased by 35.6%, while manufacturing of cars, trailers and semi-trailers increased by 8.6%.

At the same time, the growth rate decreased in the manufacture of machinery, machinery and machinery, whose production increased by only 0.8% in September.

It should be noted that by the end of this year, one of the largest companies in this subsector, SIA "Trelleborg Wheel Systems Liepaja", will plan to complete the project of expanding production with the creation of a production center for bicycles, which will offer over 100 employees in the next two years.

Considering that there are currently several stable and exportable mechanical engineering companies in Liepaja, the preconditions for further development of industry in the city are favorable.

In September, the increase in production volume was also recorded in textile production (+ 4.7% per year), in manufacture of chemicals and chemical products (+ 4.5%), in manufacture of rubber and plastic products (+ 4.3% ) and in other sub-sectors with a lower growth rate.

On the other hand, the production of shrinkage was again reflected in the production of food products. In September, the decline in production of this subsector by 1.7% was determined by the production of dairy products, which has been decreasing since last November.

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

For example, Food Union invested EUR 2.4 million in the purchase of four new production plants, JSC Preiļu siers intends to invest 8 million euros in the Cheledar production line, invest in the expansion of the JSC "Tukuma piens" plant and develop an organic production line. more than 10 million euros, while the company modernized JSC Smiltenes piens to plan almost a million euros.

A decrease of 4.9% in September 2018 was the result of the production of computers, electronic and optical equipment.

Last week, we heard of the decision of the European Investment Bank to grant a long-term financing of EUR 10 million to support the investments planned by Latvian electronic company AS HansaMatrix, which together total 20 million EUR in total between 2018-2020.

These are large investments, which are expected to make a significant contribution to the development of the high-tech industry in Latvia. In September this year, the volume of production also declined in the manufacture of beverages and clothing, printing and reproduction of records, repair of equipment and devices.

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The indicator of the economic confidence of Latvian businessmen in October improved somewhat. It should be noted that the confidence level during the year was relatively high.

Meanwhile, the economic crisis index in the European Union and the euro area decreased in October, but growth in Latvian production production in the euro area was stronger than in September compared to growth in the domestic and non-euro area countries, and we can therefore conclude that demand for industrial products in Latvia remains stable at the largest exit market.

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