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Economist: processing industry in Latvia can expect a new year of records

Dainis Gaspuitis/SEB.
«With a beneficial internal and external environment, industrial output volumes in Latvia will continue growing this year. The situation will still differ from sector to sector. Nevertheless, growth is expected in all of the largest industries,» says SEB Bank economist Dainis Gašpuitis.

Swedbank junior economist Linda Vildava is of a similar opinion.

Gašpuitis mentions that the growth outlook for this year may be slightly below last year’s estimates. Nevertheless, volumes recorded in the pre-crisis period may yet be exceeded in 2018.

He notes that although December’s growth rate did decline slightly, the overall industrial output volume had increased by 85% in 2017. Growth in processing industry was 8.2%. Growth of volumes consisted of increasing demand on domestic and export markets.

«Activation of construction has helped increase output in mining and quarrying sectors (+18.5%). Beneficial conditions were recorded for exports of electricity, under influence of which a 8.2% increase was noted for electricity and gas supply sector,» Gašpuitis continued.

Vildava says 2017 was significantly better for Latvian processing industry than it was for the European Union in general. «We have been more successful than our neighbours – growth in Estonia was 6.6% and 7.3% in Lithuania.»

SEB Bank’s economist mentions that data shows that processing industry’s growth in Eurozone continued at a healthy rate in January. The mood remains positive in the industry. «All major economies (Germany, France, Italy, Spain) show good growth potential. The index was 59.6 points in January, which is slightly below December’s 60.6 points. Stability is also promised in Greece, where the index has reached 55.2 points, which is the highest result in the past decade.»

The economist also emphasizes that export will play a major role for Latvia’s growth in the future. «This is demonstrated by the latest index for supply orders. Better conditions are observed for supply orders in EU markets. This means we can expect industry to serve as a powerful pillar for economic growth this year. It should be added that it is important to catch the wave and focus on preserving investments to further increase export volumes.»

Vildava says latest data demonstrates processing industry workload has reached a new record. For most industries, current workload is higher than it was in the 2006-2007 period, when the economy was sprinting forward. It is gradually becoming harder and harder to increase output rate at a high workload. The second trap hides within the gradually heating labour market. The lack of labourers will be slightly more tangible than last year, and their attraction – more expensive (a similar trend is observed in other European countries). Considering output and labour market, businessmen should think more about making production processes more clever and efficient. With all the challenges, it is expected that processing industry will likely demonstrate growth rates of 5-6%.»


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