In February of this year, the volumes of the manufacturing industry decreased by 5% compared to February of last year, according to the latest data of the Central Statistics Office. On an annual basis, volumes have been decreasing every month since December 2022, except for a small increase in December last year. In November of last year, the volumes increased significantly compared to the previous month, and they remained so in December as well, but taking into account the contraction of volumes in the first two months of this year, it must be concluded that the positive trend was not sustained and the manufacturing industry is still feeling the impact of low demand. Overall, industry decreased by 0.3% due to high price increases in electricity and gas supply (+12.7%) and minor mining (+29.4%).
In the first two months of this year, the volumes of the manufacturing industry decreased by 6.1%, which was determined by the reductions in the production volumes of non-metallic minerals, metal products and furniture. In two months, the volumes produced by computers and electronics, which grew rapidly last year, also decreased. At the same time, production volumes of printing and chemical substances and products have started to increase.
The total capacity utilization of the Latvian manufacturing industry was at a low level in the first quarter of this year, and it has been decreasing for three quarters in a row. While the capacity utilization was at a low level in the first quarter of this year in industries such as wood industry, metal products production and non-metallic mineral production, capacity utilization was historically the highest in food production, and capacity utilization was also high in the production of computers and electronics.
The turnover data of the manufacturing industry also indicate reductions, in February of this year, the turnover in the domestic market decreased by 7.4%, while the export turnover decreased by 5.3%, which indicates the missing demand.
In February of this year, the volumes of the wood industry increased by 0.2% year-on-year. Volumes at the start of this year are higher than average volumes for 2023, but they fluctuate on a monthly basis. In the timber industry, the government’s decision to revise the fixed three-year prices of the Latvian State forests and apply them to existing market trends will give a positive impulse. However, only the growth of construction in Europe and the growing demand for materials will be able to restore sustainable growth in the industry.
Growth in February was shown by the printing and recording reproduction industries (+18.4%), manufacturing of chemicals and products (+20%), manufacturing of automobiles, trailers and semi-trailers (+12.6%), as well as repair and installation of machinery and equipment ( +12.2%). For now, however, the mentioned industries are relatively small and cannot offset the significant reductions in such large industries as metal products production (-10.3%), computer and electronics production (-13.8%) and non-metallic mineral production (-7.9%).
Meanwhile, in the food sector, after growth throughout 2023, production volumes have started to decrease for the first time, being 2% lower in February than a year earlier.
The confidence indices of the European Commission indicate a moderate improvement in the confidence of Latvian producers since January of this year, but the confidence is consistently low on average in Europe. The index in Latvia has grown due to industrialists’ optimism about higher expected production volumes in the coming months. This shows that growth in the dynamics of actual volumes is also possible soon.
Demand in the manufacturing industry could increase in the second half of this year, as the European Central Bank lowers interest rates, thereby increasing consumer consumption, which in turn will boost demand. Although the growth of the manufacturing industry is expected, this year it is expected to be moderate, in the range of 2% – 4%.
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