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Economists: growth of Latvia’s industry in September – better than expected

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Baltic news, News from Latvia, BNN.LV, BNN-NEWS.COM, BNN-NEWS.RUBetter than expected – this is how Latvia’s industrial growth rates of September 2019 are described by economists of Latvian banks.

«Output of Latvia’s processing industry over the course of the year has increased 3.1%. This means a score of three, but considering the current market situation, such a score under the old school system could be considered close to the best result,» says Luminor economist Pēteris Strautiņš.

Swedbank economist Laimdota Komare adds that this is the best result of the past five months. This result was assisted by less negative development in wood processing industry and more rapid growth in certain industries.

«However, we cannot expect to see such a good result in the coming months, too,» warns Komare.

«In September there were concerns over a no-deal Brexit having a possible exhaustion effect on Eurozone’s producers and their expectations for the future. As a result of this, producer mood index has dropped to its lowest rating in the past seven years. Eurozone’s processing industry is slowed, and the endless Brexit only serves to maintain uncertainty about future trade relations – the background is not beneficial to rapid growth of processing industry in the near future,» says Komare, commenting on global winds.

Wood processing industry – moderately optimistic

Strautiņš considers results of the wood processing industry as moderately optimistic.

Although when compared to August production output has increased in September and the annual drop was very slight, the economist warns – Q4 data may turn out «very ugly, because in relation to large-scale machinery change, one of wood ‘deep’ processing leaders may decline considerably in this sub-sector.»

Economists also predict growing difficulties for round timber. Additionally, low pulpwood prices mean that many forest owners perform their work begrudgingly, which may have an effect on wood processing companies.

«Information from companies and associations outlines steep contrasts among product groups. There has been a major price drop for low and medium quality saw materials market, where income decline continues in several segments. Still, there are certain producers who are doing well. For example, demand is strong for construction products – windows, doors, etc. – and prices are on an acceptable level. Because prices of ready-made products fluctuate only slightly, it could be beneficial for producers, because procurements become cheaper,» says Strautiņš.

Komare says the slight drop in wood processing output has provided opportunities to help increase production output. However, she is also confident there may be negative turns around the end of the year.

Nevertheless, the drop may not be as dramatic, as last year was very productive, says the expert.

«It is worth keeping in mind that 2018 was generally productive for wood processing industry, and it will remain in our memory as a year of record-high profit. It is worth mentioning also that current production output volumes remain high – the year seems poor only when compared to the previous ‘golden’ year,» reminds Komare.

Metal processing industry – contrasts?

Swedbank economist says a considerable contribution to the growth of processing industry in September was secured by production of metallic products (except for vehicles and machineries), machinery and equipment repairs and installation, as well as production of computers, electronic and optic equipment.

«Output growth rates for these industries are generally measured in double digits. All three industries are part of the TOP 6, which has had a notable effect on welfare of the processing industry,» says Komare.

Strautiņš says – the most contrasting results for this year were observed in metal processing and mechanical engineering.

«This group of industries remains rapidly growing, which is an excellent accomplishment in the current market situation,» says Strautiņš.

Strautiņš says one of the keys behind accomplishments of the metal processing industry is having diversified export markets – there are many companies with different business models that make the industry more resilient against market fluctuations.

More on this topic: Manufacturing industry output in Latvia increases 3.1% in September

At the same time, the weakness of the global market may echo in industries that have large companies dependent on major customers, says Strautiņš. As an example he mentions the 10.2% reduction in Latvia’s notional automotive sector, which is dominated by three companies.

«We can never exclude the possibility that this is nothing more than a coincidence and that we will see a different result in October. Because there aren’t many such companies, their opinion does not have much of an effect on the average temperature of the industry, which remains moderately optimistic. Production plans of a typical metal processing company for 2019 have been completed. Unlike the first half of the year, there are no longer any reports of an excess of orders,» says Luminor expert.

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