Thursday , March 30 2023

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


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According to data from the Central Statistical Bureau, this year's adjusted output shows that industrial production in Latvia increased 2.5% at constant prices for nine months compared to the previous year. How do you rate this indicator as proven? The economist explained and commented.

Linda Vildava, Swedbank Economist: Manufacturing is slowly growing.

After a somewhat rapid increase in August, the production increase in September fell slightly to 2% a year (according to schedule adjustments).

In September, the food industry continued to decline, but the growth rate fell from double digits to production of cars, trailers and semi-trailers. The wood industry has maintained growth of 6%.

Manufacturing production in the nine months rose 3.1%.

The euro area manufacturing and purchasing managers' index reports that growth slowed cautiously in the first quarter due to slow economic growth, trade tensions, political uncertainty and rising costs.

Even worse, worries about the possibility of the euro area manufacturing decline at the end of the year, if things do not improve. Some indications suggest that the distrust of the eurozone manufacturing industry may have been abandoned by Latvian entrepreneurs.

Insufficient demand has almost always been the most important limiting factor for production, but the importance of this factor has steadily declined over the past two years. Last year, most entrepreneurs even mentioned that there is no constraint on production.

However, recent data suggest that the importance of insufficient demand has slightly increased again, but the percentage of firms that acknowledge that there is no obstacle to production has declined.

Despite slowing growth and declining volumes in some sub-sectors, manufacturing continues to grow and make a positive contribution to the Latvian economy. Disadvantages of future growth.

Luminor's economist Peter Strautiņš: Industrial development becomes a theater for strong-minded viewers.

Manufacturing output in September was down 1.5% from August, but the annual average growth rate was moderate to 2.0%.

The reason can be found in both the manufacturing sector and sub-sectors, depending on the brightest sector and the weakness of the euro-area industry, depending on individual "star" companies and all industry growth.

The largest sector in September was generally woodwork (6.1% per year), but in general food processing (-1.7%) was weak. The main industrial development this year is mechanical engineering. In September, this sectoral group was rather a theater of a single actor.

The annual growth rate of electrical equipment production was still exceptionally high at 35.6%, exceeding the previous year's average of 20.5%. Sep production in September increased by 8.6% compared to September, but increased by 28.1% a year on average.

On the other hand, machinery and equipment manufacturing showed little increase in September (0.8%) and electronics (-4.9%).

Large companies in this sector have an expansion plan so they can safely predict the very fast recovery of auto parts production. On the contrary, the risk of low production of machinery and machinery is significant.

Only the top six companies (Caljan Rite Hite) have achieved steady and rapid growth and report on their ambitious expansion plans by acquiring some of Metallurg's entire building.

Electronic engineering has long been an actor's play in that its dynamics are generally dependent on a company that has been very successful, but the great route of history does not tend to be straightforward and fair.

Star "syndrome" also takes over the food industry sub-sector. In the field of milk processing, the Food Federation is increasing its share through the transfer of other companies. Dobele Dzirnavnieks increased its share in organic growth by about half of the grain processing.

However, this concentration is most concentrated on fish processing that can not overcome the consequences of embargo on Russian processing plants due to the rapid development of one company (Karavela) and the crisis of other manufacturers. The company 's management estimates that Karavela is already producing well over half of the canned sheep.

Furniture production is not so intense, but the share of SWF, Kvist, and Dailrada's three industry leaders is also increasing. Pharmacies have long been linked to two leaders whose success is variable, but the long-term development curve is upwards.

In general, this concentration of power is advantageous for development. Large scale in the industry is a positive factor in increasing productivity. These companies can be patient because they have the money and human resources to secure the export market.

The success of Caravel allows us to predict that the fishwork process will be overcome in three years by two years. Last year, the company's sales increased by 63% to 38.7 million units. This year it will be over 40 million and the company is already repairing the premises for additional equipment installation.

Of course there are risks. The problems of one company can have a significant impact on the results of the entire field. However, in connection with the three large divisions / groups of food, wood and metal + machinery, they generally have a strong team of powerful strong players.

In addition, the manufacturing industry as a whole is only about 13% of value added, and exports are supporting the service sector. The industry has declined this year and the exports of services are very good.

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

September of this year is the weakest month in the Latvian industry since 2014 and production in the Latvian industry has decreased by 1.2%, according to data released by the Central Statistical Bureau compared with the previous month.

This unexpected fall in September is more related to the one-time factor in the energy sector, which saw its output decline by 12.6% in September. However, the encouraging trend was not observed anywhere in the industry, and manufacturing output in September increased by 2%.

This was far behind the economy's overall economic growth this year, unexpectedly reaching almost 5% in the third quarter.

The biggest impact on the industrial producers in September was due to heavy rainfall in the autumn and energy production in the Latvian hydroelectric power plant, which was very high. This year, CHP plants could not increase their electricity production to 80%.

This effect will no longer appear in the next few months and therefore industrial output in Latvia will improve over the remainder of the year.

However, the manufacturing sector, which saw a 2% YoY increase in production in September, is a big concern. The sector is heavily reliant on exports, and the situation in the world economy is no longer satisfactory as late last year and early this year.

In the third quarter of this year, the economic growth rate in the euro area was lower than the figure indicating the world trade contraction at the end of the year, and in September almost all of the manufacturing increased in Latvia with only three sectors: wood processing, electrical equipment and automobile and auto parts production .

Wood processing in September was up 6.1 percent, electrical equipment 35.6 percent, and automobiles and parts 8.6 percent.

The increase in the production of wood processing seems to have contributed to some extent due to the sharp rise in the price of wood since last year, but the price of wood on the other side of the Atlantic has started to fall sharply since August, which means that in Latvia over the next few months.

At the same time, manufacturing in September suffered from food production (-1.7% YoY), computer and optical equipment (-4.9%), equipment installation and repair (-17.2%).

Looking at the months and months to come, I am somewhat cautious about the outlook for manufacturing. This sector is experiencing a rapid increase in disparities between wages and productivity, which negatively impacts industry profits and development investment.

At the same time, the external environment is no longer benevolent, and industry growth has slowed in recent months in Lithuania and Estonia as well as elsewhere in Europe.

Therefore, since the manufacturing growth rate in Latvia this year and next year is just over 3%, the growth of the Latvian economy will depend more on internal factors during that time.

FM: Manufacturing declined while industrial declines were down in September.

According to recent statistics, industrial production in Latvia fell 1.2% in September this year compared to September of last year.

However, the growth rate recorded in the past two months has reached a level of positive growth in the third quarter of 2018, and industrial output has increased by 3% from the third quarter of last year.

Industrial growth in September last year was largely due to a significant increase in electricity and gas supplies, but this year the situation was reversed and declining industrial production was due to a decline in this area.

Electricity and gas supply fell 12.6% in September this year if the energy sector grew 37.4% YoY in September and provided a high base of the year.

The decline in this sector indicated that the hydroelectric power generation output fell sharply (-84.1%), which was particularly low due to the unusual construction in September of this year as well as the high base year of last year.

Meanwhile, production at the CHP plant in September increased by 79.6% compared with the previous year, but it was not enough to offset the deterioration of the hydroelectric power plant.

At the same time, manufacturing output increased 2.0% compared to September of the previous year. The situation in the sub-sector varies but is generally similar to that observed in previous months.

Already the growth of the manufacturing sector next month was determined by the wood industry, which is the largest sub-sector, which increased 6.1% in September.

In September, we saw good growth in certain sectors of the mechanical engineering sector. For example, the annual output of electrical equipment has increased by 35.6%, while the production of cars, trailers and semi-trailers has increased by 8.6%.

At the same time, growth in machinery, machine and machine tool production has declined, and production has increased by 0.8% in September.

Late this year, one of the largest companies, SIA "Trelleborg Wheel Systems Liepaja", plans to complete a production expansion project by creating a wheel center manufacturing center to hire over 100 employees over the next two years.

Considering that Liepaja currently has several stable and exportable mechanical engineering companies, the preconditions for city industrial development are advantageous.

In September, the sub-sector was lower in textile manufacturing (+ 4.7% per year), chemical and chemical products (+ 4.5%), rubber and plastic products manufacturing (+ 4.3%) and other volume growth.

As a result, output decline was again reflected in food production. The fall in sub-sector output by 1.7% in September was determined by the declining production of dairy products since November last year.

At the same time, major dairy producers in Latvia see ambitious investment plans that should be reflected in dairy production data and change observed trends in the near future.

For example, Food Union invested € 2.4 million in the purchase of four new production facilities. JSC Preiļu plans to invest € 8 million on the Cheledar production line, investing in the expansion of the JSC "Tukuma piens" plant and developing an ecological product line. I will. In the modernization of JSC "Smiltenes piens", we plan to invest almost one million euros, while it is over 10 million euros.

A 4.9% decline in September 2018 is due to the production of computers, electronics and optical equipment.

Last week we heard about the European Investment Bank's decision to approve long-term financing of EUR 10 million to support the planned investment by the Latvian electronics company AS HansaMatrix. Between 2018 and 2020, it amounts to 20 million Euros.

They are expected to make a significant contribution to the development of high-tech industries in Latvia. In September this year, production also declined in beverage and clothing manufacturing, record printing and duplication, and equipment and home appliance repair.

Related articles

In October this year, Latvian business confidence index slightly improved. It should be noted that the level of trust was relatively high throughout the year.

On the other hand, the European Union (EU) index and the eurozone economic index showed a decline in October. However, as in September, the growth rate of manufacturing output in the euro area was larger than that of the domestic market and the euro area. Market stability.

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