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Friday 24.11.2017 | Name days: Velta, Velda
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Economists: investments necessary to boost production

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Recently, Latvian producers’ optimism has risen sharply along with the industrial production, with several companies reaching the pre-crisis level in terms of the capacity. However, businessmen need investments for even greater increase in production, the economists say.

DnB Nord Bank economist Pēteris Strautiņš:

The seasonally-adjusted industrial data indicate no gains since mid-2010, while during the first two months of 2011 the manufacturing output hovers around 5% below the level of H2 of 2010. This seems rather strange and definitely not in line with the overall atmosphere in this sector. The coming months will provide an answer to this question and I think a sharp increase in output statistics will be a solution. This is also proven by new orders data: in January Latvia reported the fastest increase in the European Union (EU), or 75.9% on a yearly basis.

This will ensure that at least in manufacturing the output growth will maintain at about 10% (in February – 13.3%). This sector will play a crucial role in 2011 economy and future. However, the industrial sector progress does not directly affect the standard of living, so people need to be patient.

Swedbank senior economist Lija Strašuna:

After three months of decline, in February 2011 the manufacturing output increased again, by 1.5% over the previous month. This growth is not very large, but it is still rather healthy. In comparison, last year, the manufacturing output grew about 1.5% a month. As expected, the growth is gradually pushed by metal production and machinery industries. February 2011 saw an increase in the manufacture of metals and metal products, electrical, electronics and other machinery and equipment, as well as vehicle, trailers and semitrailers. While, timber production reported a slight drop. Food industry output remained stable, with a small decrease after the last month’s rise.

The producer sentiment data (confidence surveys) indicate business optimism has climbed over the last two months, including growing expectations of industrial output. This gives hope industrial growth will be ongoing. Yet at the same time, many industries have already reached or even surpassed their capacity of the pre-crisis years. So, they require investments to boost the production even more. More investment are expected this year, but it will take time for it to reflect in the industrial output. Therefore, it is projected 14% manufacturing output surge in 2010 could halve in 2011.

SEB bank macro-economics expert Dainis Gašpuitis:

The total activity has surged in February; however, a drop is observed in several sectors. These changes have mainly occurred due to the weather, raw material price gains and changing demand. The biggest growth was recorded in the manufacture of automobile parts, which can be explained by the increase in car demand throughout the world. Latvian entrepreneurs have taken certain niches of different parts manufacture, which could be one of the prospects of Latvian industrial development. The logistics surcharge is forcing many companies to assess offers from the potential suppliers situated closer to the manufacturing centres.

Similarly, the rise in clothing production indicates consumption and demand are growing, but mainly in foreign markets. For the same reasons, conditions in the Latvian textile industry could improve in a longer term. This will depend on numerous unpredictable global processes. Building material production shows an impressive growth. Despite the overall rise, a number of industries are reporting a decline. For instance, the beverage production, which is most likely affected by seasonal changes in demand. Natural raw materials price gains have squeezed the chemical production. For example, the grain surcharge is limiting the availability of raw materials for biofuel producers. While the negative indicators of other vehicle segments reflect the complications caused by the frost and ice, resulting in ship construction drop.

In February, the manufacturing growth rates kept a healthy pace to remain stable during the year (8-10%). Sectors will report various situations influenced by Latvian entrepreneurs’ ability to balance surging costs with quality and price but continuing with the productivity boost. Gaining raw material prices together with logistics costs show trends to open up new possibilities for Latvian producers, because it deprives distant and least expensive countries of their advantages. The investment and tax policy will have an important role in creating the country’s image to turn the emerging opportunities in new jobs.


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