Industrial output in June decreased by 0.4% y/y and 0.2% m/m in constant prices and seasonal adjusted terms, according to the report by the Central Statistical Agency. The decline of the indicator was mostly to lower supply of electricity and gas, which declined by 6.7% m/m and 7.1% y/y.

Manufacturing, at the same time, gained 1.2% m/m and 0.8% y/y. Mining and quarrying went up by 4.8% m/m and 14.2% y/y. In y/y terms manufacturing improved in food products (4.9% y/y), metals products (4.4% y/y), while same as in the previous months dropping by 72% y/y for basic metals.

May ended three previous consecutive months of y/y decline of industrial output, but the trend was back on negative in June. Y/y decline of the indicator was last seen in the end of 2009. Negative trend in manufacturing is still being supported by 10% m/m and 72% y/y drop in basic metals due to disruptions of output in the distressed Liepajas Metalurgs metallurgy producer.

Bank of Latvia economist Igors Kasjanovs on makroekonomika.lv welcomed the 1.2% m/m increase in manufacturing and reminded that manufacturing is growing for the third months in a row. The central bank still believes that other sectors will be able to compensate for the decline of the metals sector. EU confidence indicators also suggest that in the coming months slow manufacturing increase might continue.

In the mid-term the situation is still going to be dependent on the external environment, but long-term development will be based on capital investment and government policies. The CB economist notes that even should the external demand boom, currently there is not much excess capacity in Latvian industry without sufficient investment.

Previously CB believed that overall this year manufacturing and industrial output might decline y/y. To compare, in 2011 industrial output increased by 8.9% y/y amounting to LVL 4.76bn (EUR 6.77bn), in 2012 it increased by 6.2% y/y to LVL 5.295bn (EUR 7.53bn).