The industrial performance in the second wave of Covid-19 in Latvia is still significantly better than in the spring of this year. According to the information published by the Central Statistical Bureau, in October of this year, Latvia’s manufacturing industry continued to grow and compared to October of the previous year, production volumes have increased by 1%, which significantly exceeds the overall indicators of the economy.
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The positive growth of industry and retail trade in recent months suggests that the situation in the goods sector of the economy as a whole is good, even despite the recurrence of Covid-19. Manufacturers’ sentiment is at a good level, and new orders in Latvia are growing. The world’s leading producer purchasing managers’ sentiment index has also reached its highest level since 2018, and world trade has actually returned to pre-Covid-19 levels.
In addition, in contrast to the spring, when the initial outbreak of Covid-19 and national measures to curb its spread led to a general decline in consumption as well as disruptions in production chains, consumption has now fallen only slightly. However, the structure of consumption is changing and spending on services is declining, while demand for various goods is growing. Such a rotation of demand from goods to services is observed both in Latvia and in other European and world countries.
This, of course, creates demand in the manufacturing industry, and therefore I am in a positive mood about the prospects of Latvian industry in the next 3-6 months. Therefore, the biggest threat to Latvian industry at the moment is not a general drop in demand, but Covid-19 outbreaks in some manufacturing companies, as a result of which companies are forced to suspend their operations.
Latvia’s manufacturing output in October has already exceeded the level of the beginning of this year, and it is one of the best industrial performances in the European Union this year, although significant improvements in industry have been observed in other countries in recent months. This indicates that the competitiveness of Latvian producers is still good. In October, the production of wood products (+ 8.2% against the previous year), printing (+ 11.4%) and electrical equipment (+ 19.8%) grew the fastest in Latvia. In addition, for the first time this year, the production of car parts is also positive, where output increased by 9.7% in October.
Meanwhile, clothing production fell by 11.7% in October and finished metal products fell by 6.9%, most likely due to private sector caution and a wait-and-see attitude towards new investment. The good news, however, is that, compared to the beginning of the year, production volumes in none of the major manufacturing sub-sectors have fallen by more than 10% at present, and I do not think we will see a large number of downtime recipients in the coming months.
Manufacturing is likely to continue to grow in the remaining months of the year. This year, the sector as a whole is expected to fall by around 2%, which is significantly better than the projected decline in GDP of 4.7%. Growth in industry could be in the range of 3% to 5% next year, but it should be borne in mind that as the epidemiological situation improves, demand for services will grow significantly faster than for goods, which could slow down industrial growth.
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