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 information published by the Central Bureau of Statistics, the Latvian manufacturing industry continued to grow in October this year and production volumes increased by 1% compared to October of the previous year, which is significantly higher than the general indicators of the economy.
The positive growth of industry and retail in recent months suggests that the situation in the goods sector of the economy is generally good, despite the repetition of Covid-19. The sentiment of the manufacturers is at a good level and there are more and more new orders in Latvia. The sentiment index of the world’s largest producer purchasing managers has also reached its highest level since 2018, and global trade has even returned to pre-Covid-19 levels.
In addition, unlike spring, when the first outbreak of Covid-19 and national measures to curb its spread led to a general decline in consumption and disruptions in production chains, consumption has now fallen only slightly. However, the consumption structure is changing and spending on services is decreasing, while the demand for various goods is growing. Such a rotation in demand from goods for services is observed in Latvia as well as in other European and world countries.
This of course creates demand in the manufacturing industry, which is why I am positive about the outlook for the Latvian industry in the next 3-6 months. Therefore, the biggest threat to the Latvian industry at the moment is not a general drop in demand, but Covid-19 outbreaks at some manufacturing companies, forcing companies to suspend operations.
Latvia’s production in October already surpassed early this year and is one of the best industrial performances in the European Union this year, although significant improvements in the industry have been seen in other countries in recent months. This indicates that the competitive position of Latvian producers is still good. In October, the production of wood products (+ 8.2% compared to last year), printing (+ 11.4%) and electrical equipment (+ 19.8%) grew fastest in Latvia. In addition, auto parts production is also positive for the first time this year, with production increasing by 9.7% in October.
Meanwhile, apparel production declined 11.7% in October and finished metal products declined 6.9%, most likely due to private sector caution and a wait-and-see attitude towards new investment. However, the good news is that, compared to the start of the year, production volumes have not fallen more than 10% in any of the major manufacturing sub-sectors, and I don’t think we’ll see a lot of downtime benefits in the coming months.
Production is likely to continue to grow in the remaining months of the year. This year, the sector as a whole is expected to decline by about 2%, which is significantly better than the projected decline in GDP of 4.7%. Industrial growth could be between 3% and 5% next year, but it must be taken into account that as the epidemiological situation improves, the demand for services will grow significantly faster than for goods, which could slow down industrial growth.