The recovery of growth in industry is not expected soon, as it is affected by the weakness of economic activity in foreign trade partner countries, bank economists told LETA agency.
Agnese Puķe, the economist of the Bank of Latvia, explains that “the drop in output in January put such a large dose of acidity in the sweet pot of the manufacturing industry” that the small improvement in February and March did not allow to significantly change the assessment – the first quarter of the year for the manufacturing industry was a 2.7% drop compared to with the fourth quarter of 2023.
However, the economist admits that it might be too hasty to call the industrial development up to now a “skyscraper”, considering the many challenges in the export markets. However, the output increases at the end of last year have now looked inspiring for the industry, as well as the improvement of industrial sentiment indicator in the first quarter of this year. In April, however, optimism faded a little.
Economic activity in foreign trade partner countries remains weak, especially in the segment related to the export of construction raw materials, explains Puķe. Also, the April survey data of woodworkers, metal structures and building materials producers on the lack of demand as the main limiting factor of activity does not show an overall improvement, thus diminishing the hopes for an early recovery of growth. In addition, the activity of woodworkers has become a “lumpy mess” in connection with the recent decision of the Constitutional Court, which canceled the amendments to the regulations that allowed the felling of trees of smaller diameter.
“It is difficult to predict how this issue will be resolved, especially in connection with the logging certificates issued during this period, but for some time, the efforts of the industry will be needed to clear this mess,” says Puķe.
However, the construction segment does not have the most highly rated problem of lack of demand, among industries the situation is the most gloomy in the printing industry, however, the demand problem has slightly receded in recent quarters, adds the economist of the Bank of Latvia.
“Luminor Bank” economist Pēteris Strautiņš emphasizes that Latvia’s industry maintained positive dynamics in March compared to the year, which returned in February after almost continuous decline in the negative zone since the middle of 2022. In the manufacturing industry, March was much better than the beginning of the year, but compared to the previous March it still decreased by 1%, in January the corresponding indicator was even minus 6.9%.
The beginning of the year turned out to be the quarter with the lowest production volume during the mini-crisis period of the manufacturing industry, which began when the rest of the economy was freed from the influence of gathering restrictions, explains Strautiņš. According to the economist, there are hopes for a better future, but they will come true gradually. The sentiment indicators of the most important sub-sectors show either slight optimism or pessimism, but the industrial mood as a whole is quite a bit sadder than average.
The situation in world trade in general is slowly improving, informs Strautiņš. The Organization for Economic Co-operation and Development (OECD) predicts that world trade in goods and services will grow by 2.3% this year and could grow by 3.3% next year, while last year’s figure was only an increase of 1%. Measuring trade only with goods, it even decreased by 1.2% last year, the World Trade Organization estimates, but this year it could grow by 2.6%. A sharp turnaround occurred right at the beginning of the year – in February, trade in goods grew by 1.2% year-on-year, as opposed to a 0.9% decline in January. Strautiņš believes that there is still room for growth, the typical rate during this century was about 4% per year.
However, Latvia is still in the corner of the world with an unusually low economic temperature, the economist admits.
It has already been reported that the volume of industrial production in Latvia in March, compared to March 2023, increased by 0.7% at comparable prices according to calendar-adjusted data.
The volume of production in the manufacturing industry decreased by 1%, while there was an increase in electricity and gas supply by 3.2% and in mining and quarrying – by 25.8%.
