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Friday 21.09.2018 | Name days: Matīss, Modris, Mariss
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Study: economy gains stability, not wisdom

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Baltic news, News from Latvia, BNN.LV, BNN-NEWS.COM, BNN-NEWS.RUIn February–March 2011, manufacturing growth resumed in Latvia; however, it was more successful in the rest of the Baltic Sea region. Latvian manufacturing has to surge faster to ensure the same economic growth as in the neighbouring countries, concludes Swedbank’s recent study.

The bank’s experts point out after the rapid growth in the first half of 2010 the rise in manufacturing volume slowed down and output shrank in late 2010. This is also one of the reasons why the economic recovery in Estonia and Lithuania was more rapid.

The manufacturing industry’s slowdown in Latvia is partly tied to the sluggish timber industry rise in the second half of 2010. Despite a certain rebound in early 2011 timber industry’s growth will be hampered by raw material and manufacturing capacity constraints. Production capacity limitations are seen in other manufacturing sectors, because so far investments in manufacturing have been relatively poor, the experts explain.

Metal and machinery sector has taken over the reins from timber producers. Yet  many of these companies are rather small and dependent of large orders placed by some clients. The development of these sectors is more volatile than that of timber industry. On the other hand, larger diversity of metal and machinery companies protect them better from external shocks. Especially given that the most powerful companies have survived, the study concludes.

Swedbank experts agree the economy is becoming more balanced. However, investments are necessary for it to become more «wiser» as well. Until now, manufacturing growth was mainly based on surging external demand. This trend will continue because the domestic demand will recover slowly. Investment activity is expected to climb, because debt commitment reduction will become less acute with businesses gradually arranging their finances.

Consequently, manufacturing and export will keep growing, although the growth rates will be slower than in 2010. The Latvian economy is gradually becoming more balanced – the manufacturing and export share of gross domestic product (GDP) is growing. However, this is just the beginning and many years will have to pass to create a sustainable structure.

Manufacturing growth slowdown is not a reason for concern, says Lija Strašuna, senior economist at Swedbank. However, Latvia is still lagging behind Lithuania and Estonia in terms of export and industrial output percentage of GDP, as well as quality and high technologies.

Therefore, the Latvian manufacturing industry has to develop faster to provide the same economic growth as in neighbouring countries. It has not happened so far and this is one of the reasons why the economic recovery in neighbouring countries is faster. To promote higher value added production, larger investments in innovation and new product research and development are necessary.

Despite improvements in the investment and business environment, there are still many options in the economic policy, which should be made use of to boost investments and industrial growth, thus supporting export-driven economic expansion. This includes reforms in the higher and vocational education, more effective and targeted EU fund acquisition, diversification of financial sector and relieving the labour tax burden.


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