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International Internet Magazine. Baltic States news & analytics Sunday, 24.06.2018, 08:03

In November, good results in manufacturing, outstanding in the energy sector

Igors Kasjanovs economist, Latvijas Banka,, 04.01.2017.Print version
According to the information published by the Central Statistical Bureau, the amount of manufacturing industry production in November of 2016 increased by 1.9% month-on-month (seasonal effect excluded) and 9.1% year-on-year.

The November results represent a trend continuing from previous months – most manufacturing sub-branches are posting positive year-on-year growth rates (with chemical industry as the only exception). Food industry has stabilized in positive territory (year-on-year change in November: +3.2%), wood industry has overcome its recent moment of weakness (+8.2%), growth continues also in the production of fabricated metals (+3.4%).

An important signal comes from the production of construction materials (+17.8%), where the good results may indicate a soon recovery of the construction industry. If the computer, electronic and optical equipment manufacturing has already made us accustomed to two-digit growth (+14.6%), in other branches – electrical equipment manufacturing (+31.3%), automobile, trailer and semi-trailer manufacturing (+46.6%), as well as repairs of equipment and devices (+25.7%) – the results are a positive surprise.

The November results of energy industry also merit highlighting – production amounts have grown 7.4% month-on-month and 18.6% year-on-year. The good results can be explained by the high level of electricity generation what was possible due to high level of water in Daugava basin and favourable price conditions in the region.

The available information (two-month data) on manufacturing and energy industry results in the fourth quarter of 2016 indicates that the branches will have a positive impact on the growth of gross domestic product (GDP). Taking into account the good operational results of retail trade as well as the growth in the amount of cargoes transported by rail and handled in ports (albeit from very low levels), good GDP growth will probably be observed in the concluding quarter of 2016. 

Despite the comparatively good results, both manufacturing and mining sectors have suffered from the interruption in the inflow of European Union (EU) funds. 

First, the sectors suffer from a lack of construction industry demand. A number of manufacturing branches (wood industry, chemical industry, rubber and plastic product manufacturing, non-metallic mineral product manufacturing, metal and fabricated metal product manufacturing) and the mining industry produce for the construction branch.  

Some of the sub-branches managed to carry out sales in other markets (metal products, non-metallic mineral products) and in some, a drop in production volumes is observed for these reasons (in mining industry and, to a lesser extent, in chemical industry). With the activity of the construction industry resuming in 2017 (in all likelihood, in the second half of the year), traction should appear also in the aforementioned branches of manufacturing.

Second, the availability of EU funds had an impact also on those manufacturers who were planning to use them to invest in replacing their equipment or improve their industrial premises.  As a result, the nonfinancial investment in manufacturing dropped by 28.8% in the first three quarters of 2016. On the one hand, this situation is ample evidence of what happens when public financing (in this case, EU funds) is interrupted relatively suddenly. On the other hand, this situation sounds a warning to the sector – from now on, or in the next planning period regarding EU funds, it will have to rely much more on the traditional instruments – own capital, loans, micro-loans, mezzanine expenses, risk capital etc. – in order to invest in the fixed assets. 

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