Latvian Industrial Output Surges, Manufacturing Shows Mixed Signals

Latvia’s industrial sector experienced a significant boost in January, with output volumes increasing by 13.2% compared to the same period last year. This marks the largest volume increase since April 2021, driven primarily by a surge in the energy sector due to colder-than-average temperatures. However, the manufacturing industry presents a more nuanced picture, with growth slowing in some areas despite overall positive trends.

Energy Sector Leads the Growth

The electricity and gas supply sector saw a substantial increase of 57.1% year-on-year in January, the largest annual increase since July 2024. This was fueled by a 24.7% rise in electricity generation and a 98.2% increase in natural gas consumption, directly linked to the colder weather conditions. While hydroelectric power plant output decreased by 51.3%, this was offset by a 129.3% increase in cogeneration plant output.

Manufacturing Industry: A Mixed Bag

While the manufacturing industry continued to grow for the tenth consecutive month in January, with a 1.3% increase compared to the previous year, growth rates are decelerating. The food manufacturing industry (+7.8%), non-metallic mineral production (+11.4%), metal product manufacturing (+12.5%), and automotive sectors (+34.9%) were key drivers of growth. However, some sub-sectors experienced declines.

For the first time in 16 months, the wood industry saw a decrease in volume (-3.8%). Declines were also recorded in printing (-10.3%), clothing production (-15.2%), and repair and installation of equipment and devices (-43.3%). Beverage production continued its downward trend for the sixth consecutive month, falling by 12.7%.

Looking at the last six months, food product manufacturing remains the only large manufacturing sector consistently demonstrating stable growth. Volumes in the wood industry, metal products, and construction materials production are currently high but are no longer increasing.

Economic Confidence and Outlook

The European Commission’s confidence index for Latvia’s manufacturing industry has remained relatively stable since mid-2024, but is higher than a year ago. However, manufacturers report a negative trend in order volumes, though a slight improvement was noted in February. This indicates a decrease in domestic demand while export orders continue to rise.

Entrepreneurs also report a reduction in inventories, but confidence in expected production volumes remains high. Considering this confidence and the potential for increased military production, the manufacturing industry could spot growth of 3-4% in 2026 compared to 2025.

Looking Ahead

The energy sector is expected to continue driving industrial output growth in February. While stagnation is apparent in the manufacturing industry, sustained confidence among industrialists and potential increases in military production suggest a positive outlook for the year, with projected growth of 3-4%.