Tuesday , June 28 2022

The industry recorded the weakest month in 2014. How do economists explain it?


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According to data of the Central Bureau of Statistics, production of industrial production in Latvia this year, in the nine months of the previous year, according to calendar-adjusted data, increased by 2.5% at constant prices. How do you evaluate this indicator, as it turns out, explained and commented by economists.

Linda Vildava, Swedbank Economist: Production continues to grow slowly

After somewhat faster growth in August, manufacturing output in September slowed down slightly to 2% during the year (according to calendar-adjusted data).

In September, volumes continued to decline in the food industry, while the growth rate dropped from two-digit heights to car production, trailers and semi-trailers. The wood industry continued to grow well enough to 6%.

Production production increased by 3.1% in the nine months of this year.

The Euro Area Manufacturing Index reports continued growth deceleration at the beginning of the fourth quarter with caution due to lower economic growth, trade tensions, political uncertainty and rising costs.

Even worries about a possible fall in euro area manufacturing at the end of the year are even worse if the situation does not improve. Some signs suggest that the mistrust of the euro area manufacturing industry could have been abandoned by Latvian entrepreneurs.

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

Recent data however suggest that the importance of insufficient demand has increased slightly, but the proportion of companies that recognize that there is no disruption to production has fallen.

In spite of lower growth and lower volumes in some subsectors, the manufacturing industry continues to grow and contribute positively to the Latvian economy. The negative risks of future growth.

Peter Strautiņš, economist at Luminor: Industrial development becomes a theater for powerful nervous viewers

In September, production output declined significantly – by 1.5% compared to August, but the annual growth was modest by 2.0%.

Reasons can be found both for the weaker growth of the euro area industry as well as manufacturing and the sub-sector, depending on individual "star" companies, as well as on all industrial increases, depending on the sectors brighter.

In September, the largest sector was usually strong – wood processing (+ 6.1% per year), but overall food processing (-1.7%) was weak. The important industrial development of this year was mechanical engineering. In September, this sectoral group was rather the theater of a single actor.

The annual growth rate of electricity equipment production was still exceptionally high at 35.6%, which exceeds the previous average of 20.5%. Equally important is the production of auto parts – September's production grew by 8.6% in September compared to September, while on average it increased by 28.1% per year.

On the other hand, machinery and equipment production grew almost in September (0.8%), but even in the electronics industry (-4.9%).

It can safely anticipate a very rapid recovery of car parts production, as large companies in this sector are planning to expand. Instead, the risk of slow growth in machine and machine production is significant.

Only one of the top 6 companies (Caljan Rite Hite) has witnessed steady and rapid growth over the years and reports ambitious expansion plans by taking over some of Metallurg's former premises.

Electronics has long been a theater for a single actor, in the sense that its dynamics are strongly dependent on one company, which has generally been a great success, but the great lines of history tend not to be straight and fair.

Steele Syndrome also takes over the subsectors of the food industry, and in the milk processing sector, the Food Union increases its quota by transferring other companies. The rapid organic growth of up to half of cereal processing has allowed its share to rise to Dzirnavnieks Dobele.

However, this concentration is fastest concentrated in fish processing, driven by the rapid development of a company (Karavela) and the crisis of other producers, which can not overcome the consequences of a Russian sprat embargo. The company's management estimates that Karavela already produces more than half of the total quantity of preserved fish.

Furniture production is not so concentrated, but the share of the three industry leaders – the SWF, Kvist and Dailrada sources – is rising gradually. Pharmacy has long been the tandem of two leaders, whose success is variable, but the long-term development curve is on the rise.

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

The success of Caravel allows us to anticipate that the three-year stagnation of fish processing is likely to be overcome in a few years. Last year, the company's turnover increased 63 percent to 38.7 million, this year will exceed 40 million, and the company is already repairing installations to install additional equipment.

Of course, there are risks. The problems of a company can have a profound effect on the results of the whole sector, as we see it now. However, with regard to three large sectors / groups of large sectors – food, wood and metals + machinery, they generally have robust teams of many powerful actors.

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

Mārtiņš Āboliņš, Economist at Citadele: September was the weakest month in the Latvian industry in 2014

September this year was the weakest month in the Latvian industry in 2014 and, compared to the same month of the previous year, the volume of production in the Latvian industry fell by 1.2%, according to data released by the Central Bureau of Statistics.

This relatively unexpected decrease in September is more related to the single measures in the energy sector, where production volume decreased by 12.6% in September. However, not very encouraging trends are observed elsewhere in industry, and in September production output increased by only 2%.

It is far behind the global economic growth this year, which in the third quarter has unexpectedly reached almost 5%.

The biggest influence on industrial producers in September was caused by a fall in energy due to the high rainfall in the autumn and the very large increase in electricity production in Latvia's hydroelectric power plants, which this year could not even offset the increase with 80% of electricity production in cogeneration plants.

In the coming months, this effect will not be so pronounced, and therefore Latvia's industrial output should be improved in the rest of the months.

However, the production sector, where production volume increased by only 2% in September compared to the previous year, has a higher concern. The sector is highly dependent on exports, and the world economy is no longer as enjoyable as at the end of last year and earlier this year.

In the third quarter of this year, economic growth in the euro area fell below and exceeded the figures indicating the global contraction of trade at the end of this year, while in Latvia in September almost full manufacturing growth was provided only by three sectors: woodworking, electrical equipment and automotive and auto parts production.

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

Increasing production volumes in wood processing is also likely to have contributed to a certain extent to the rapid increase in wood prices last year, but since August wood prices on the other side of the Atlantic have started to drop sharply, which means that they can feel in Latvia in the coming months.

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

Looking at the last months of this year and next year, I'm pretty cautious about the prospects of the manufacturing industry. The sector is increasingly confronted with a rapid imbalance between wages and productivity, which has a negative impact on industry's profits and on 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 slowed down in Lithuania and Estonia as well as elsewhere in Europe.

Therefore, the increase in production in Latvia this year and next year is likely to be just over 3% and therefore the growth of the Latvian economy will be more dependent on domestic factors at that time.

FM: The decline in industry declined in September, while manufacturing continued to grow

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

However, the increase in the past two months was high enough to achieve a positive industry growth in the third quarter of 2018, with industrial production rising 3% over the third quarter of last year.

In September, industrial growth was largely driven by a strong increase in electricity and gas supply, but this year the situation was reversed, and the fall in industrial output was driven by a decline in this sector.

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

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

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

At the same time, production output grew by 2.0% compared to September of the previous year. The situation in the sub-sectors varied, but largely similar to the developments observed in the previous months.

Already in the following month, output growth was driven by the largest sub-sector – the wood industry, with a 6.1% increase in September.

A strong increase continued in September in certain branches of the automotive sector, for example, annual production of electrical equipment increased by 35.6%, and production of cars, trailers and semi-trailers by 8.6%.

At the same time, the growth rate fell in the manufacture of 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" intends to complete a project to expand the production by creating a center for the manufacture of belt centers will provide more than 100 employees over the next two years.

Given that there are several stable production and export capabilities in Liepaja today, the preconditions for further development of the industry in the city are favorable.

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

In turn, the output contraction was again reflected in the production of food. In September, the decrease in production of this subsector by 1.7% was driven by dairy production, which declined from November last year.

At the same time, Latvia's dairy farmers report on ambitious investment plans, which should be reflected in dairy production data, changing the trends observed so far in the near future.

For example, Food Union has invested 2.4m euros in the acquisition of four new production equipment, JSC Preiļu siers intends to invest 8m euros in the Cheledar production line, invest in expanding the Tukuma piens SA plant and develop the organic product line. more than 10 million euros, while in the modernization of the "Smiltenes piens" JSC intend to invest almost one million euros.

The decline of 4.9% in September 2018 was also attributable to the production of computers, electronic and optical equipment.

Last week I heard about the decision of the European Investment Bank to approve a long-term financing of EUR 10 million to support investments planned by the Latvian electronics company AS HansaMatrix, which together amount to EUR 20 million between 2018-2020.

These are massive investments and are expected to contribute significantly to the development of the high-tech industry in Latvia. In September of this year, production volumes also fell in beverage and clothing production, printing and reproduction of records, repair of equipment and appliances.

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The economic confidence index of Latvian businessmen in October this year has improved slightly. It should be noted that the level of trust was relatively high throughout the year.

At the same time, the European Union index and the euro zone's economic sentiment diminished in October, but in September, the increase in Latvian manufacturing was stronger than domestic and non-euro area growth, we can conclude that the demand for industrial products in Latvia stable.


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