The general mood in industry remains optimistic on the local and export markets, which leads us to believe that February’s slowdown will not have a lasting effect, Swedbank economist Linda Vildava comments data on February’s industrial output.
Vildava explains: «In February 2017 processing industry returned to moderate growth rate – production volumes have grown by 4.6%.»
It should be noted that DNB Bank’s economist Peteris Strautins is also optimistic about CSB data: «It may have had declined somewhat in March because of the base effect. Production volumes in the first three months of last year were like stairs. The outlook for this year does remain positive. Looking at the situation from the perspective of different sectors, we see that the situation noted in February is nearly the opposite of the situation that was noted one year ago. Production output declined at the same time in logging and food production, which is unusual. Both sectors were doing well last year. Output in mechanical engineering and electronics, on the other hand, continues to grow.»
Some sectors have managed to maintain two-digit growth rates in previous months. They continue increasing output volumes. As examples, the economist mentions computer, electronic and optical equipment (34.8%), machineries and mechanisms (15.7%), as well as manufacturing of vehicles and transport equipment (17.4%). The success of processing industry leaders has declined somewhat. Manufacture of metal products has grown 3.2%, whereas production volumes in food production and logging have declined (by 4.1% and 1.0% respectively).
«We’ve noticed that dynamics of processing industries can be rather unstable. Of course, it is no simple task to maintain growth rates that were registered at the end of 2016 and beginning of 2017. Producer prices in Latvia, when compared with other EU member states, grow slowly. Nevertheless, labour force cost increase in industry noted in Q4 2016 was one of the most rapid in the EU,» Vildava comments.
The expert also mentions that growing costs will not outweigh improvements in production output: «Businesses risk losing competitiveness or be forced to reduce profit margin. Statistics on loan amounts issued to processing industry in 2016 could mean that companies have matured enough for investments. The outlook on future in processing industry remains optimistic.»
DNB Bank economist Strautins notes that the situation on external markets is mostly positive, but there are also risks. «The sharp contrast between two types of economic indexes creates some confusion. This is especially true for USA and Europe. The so-called soft indexes in USA are close to the stratosphere. For example, consumer mood indexes show that consumption may grow 7%. Companies of certain sectors are very optimistic as well. Hard indexes that measure actual production and consumption volumes show that nothing special has changed and the economy continues growing by approximately 2%,» he says.
Strautins comments about the situation as a whole: «People often say and write that industry depends on the situation in global economy. Like many other popular simple facts about Latvia’s economy, this is partly true. But it can be exaggerated too. Production was growing in 2012, when Eurozone was experiencing recession. Our industrial sectors have a specific structure. Good competition helps remain different from EU’s general economic trends. Nevertheless, there are also weak points.»