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Friday 22.02.2019 | Name days: Rigonda, Adrians, Ārija
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Economists: processing industry doing well, while food industry needs more ambitions

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Baltic news, News from Latvia, BNN.LV, BNN-NEWS.COM, BNN-NEWS.RULatvia’s industrial sector was one of the most rapidly growing sectors in the country in the last six months. Current trends suggest that Latvia’s processing industry may experience good growth in 2018, says Citadele Bank’s economist Mārtiņš Āboliņš.

Swedbank’s senior economist Lija Strašuna is of a different opinion, saying that the growth rate of Latvia’s processing industry will gradually decline this year. Luminor Bank’s economist Pēteris Strautiņš says that data from the first two months of 2018 shows that Latvia’s industrial sector will be the main driving force behind growth.

Latest data from the Central Statistical Bureau of Latvia shows that industrial output volumes grew +8.7% in February. This is the most rapid industrial growth since September 2017. It also significantly exceeds the current economic development rate. Energy sector played a major part over the course of the month. Because of colder weather, production output has grown 12.7%. The month was also successful for the processing industry, where production output has grown 7.3%, says Āboliņš.

He says general trends in the industry have not changed much in the past year and a half. The most rapid growth is still observed in metalworking and mechanical engineering industry, where production outputs have grown 15-35% in February. «Chemical production industry has demonstrated good results in February (+40.3% when compared to last year’s February). Unexpectedly good results have also been observed in the wood processing industry (+5.7%) in spite of bad weather conditions limiting wood material accessibility and increasing prices.»

Strautiņš mentions that until recently the role of mechanical engineering was not considered much by society as a major sector for economic development. This is slowly being changed. «There is another industrial sector with growth potential also has many unused opportunities – chemical production. This sector’s production volumes grew 33.4% in January and 40.3% in January. This is one of the sectors that benefits from increased demand in construction. What greatly assists with this particular sector’s development is the knowledge, skills and market potential that went unused until now. Similar to mechanical engineering, this industry, which was large during the Soviet Era and then collapsed, is once again able to demonstrate its historic potential.»

Speaking of growth indexes, Swedbank’s economist believes they were secured thanks to a modest increase in woodworking industry (by 5.7%), because when weather became colder, it became easier to travel to the woods. Nevertheless, the economist also underlines that very rapid growth was also observed in several smaller industrial sectors, including chemical substances production (40%), manufacture of electronic equipment (34%), and well as manufacture of vehicles and trailers (32%). Declines were recorded only in computer and electronic appliances production (where fluctuation is a normal occurrence), production of beverages, as well as maintenance of machineries and equipment, Strašuna continues.

Āboltiņš, meanwhile, says that the processing industry will likely be one of the most rapidly growing sectors in Latvia this year. ‘The mood of local producers remains positive; external demand is also on a rise. Global trade in US dollar value had increased by 16.8% in January, which is the largest increase since 2011. This is very good news for our producers, because approximately two-thirds of manufactured products are exported to third countries. In addition, investments in processing industry have once again started growing after a break that lasted several years. Investments had grown 21.1% in Q4 2017. This reduces the risk of insufficient production capacity in certain industrial production segments.’

Swedbank’s economist mentions that after a slow start, processing industry is once again able to work. «Rapid growth is secured by increasing external demand because we already export two-thirds of what we produce (exports in 2008 formed only half of processing industry’s turnover). Turnover in the domestic market, however, kept growing at a similar pace in February. Still, it is believed growth of the country’s processing industry will gradually slow down. First of all, it seems that growth in Europe, although still rapid, will soon start slowing down. For example, procurement managers’ index in Eurozone’s industrial sector has been declining for three consecutive months even though there are signs of growth. Secondly, domestic restrictions are also on a rise, both in terms of production output and labour force. Unfortunately, we still do not invest enough,» says Strašuna.

Continuing commenting on data from the Central Statistical Bureau of Latvia, Strautiņš says that the food processing sector would benefit from being more ambitious. «Growth rate of traditional sectors will not be rapid, but their contribution to the economy will remain considerable. It is also important to make sure they are doing fine. We had expected woodworking industry to demonstrate growth in February, which was reflected in production output increase of 5.7%. The problem of excessive moisture in the woods may still reappear, however. Production output increase in the food processing industry was 2.1% in the first two months. Food production is a sector that continues successfully developing. The Central Statistical Bureau of Latvia does not publish data on grain production, but it is known that Dobeles Dzirnavnieks is doing well enough to develop exports.»


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