Industry is feeling the slowdown in the global economy
Baltic manufacturers are beginning to feel the slowdown in the the global economy, but manufacturing sectors in the Baltics are doing better than elsewhere in Europe. In July, manufacturing output in Latvia increased by 1.3% compared to July 2018, while in Estonia it increased by 2.5% and in Lithuania by 4.7%. Meanwhile, in Germany industrial output in recent months has fallen by almost 5% compared to the previous year. Although growth in the Baltic industry remains positive, the decline in external demand is increasingly reflected in business sentiment and other indicators. Since the end of last year, new orders in the Baltic States have declined in almost all manufacturing sectors. At the same time, industrial inventories are growing and production forecasts for the coming months have become more negative, while employment expectations have deteriorated sharply in Estonia.
External signals are not encouraging, but in the Baltics as well as in the world, industrial indicators appear to have stabilized and producer sentiment is indicative of a cyclical slowdown rather than a sharp decline. This means that unless the world economy experiences some new negative developments, such as the rapid escalation of trade wars or unexpected financial shocks, production in the Baltics is likely to neither grow or fall but stay at its current level with a slight upward trend.
This year, the fastest growth in the Baltic industry was observed in the manufacture of electrical equipment, computers and optical equipment, as well as in the manufacture of fabricated metal products. At the same time, in the wood industry output has started to fall in recent months, which is due production returning to a more sustainable levels after the record-breaking wood prices in 2018, which had boosted both logging and production. This, together with Brexit's fall in demand for British construction, has had a significant impact on wood sector in the Baltics. In addition, there is some concern that industrial growth in the Baltics has now become very dependent on the production of capital goods. Demand for investment in commodities is very cyclical and it is in this section of the industry that the world is currently experiencing the greatest decline and thus poses additional risks to industry in the Baltics.