Estonian industrial output falls too sharply

  • 2008-05-08
  • Staff and wire reports
TALLINN - Estonia's industrial output as of the end of March sank 4.9 percent year-on-year and 5.3 percent compared with February, the statistics office announced on May 5.
The decrease in manufacturing was mainly due to the decline in the production of food, wood and building materials. In the food industry alone, production decreased in all segments of the food industry except meat, the agency said.
Analysts said that although industrial production was expected to decline in March, the decrease was sharper than anticipated. They said there were several reasons for the trend.
"The cooling of the construction business affects the building materials industry. Production volumes in the textile and light industries are decreasing due to the poor competitiveness of the sector," Hansabank Markets' Maris Lauri commented.

"The rising costs of labor and production mean shutdown of production and taking it out of Estonia. The fall in production at Kreenholm [textile factory in Narva] has clearly affected the results of the sector and will have an impact in the future as well," he explained.
In the words of Nordea Bank analyst Kristiina Kruusa, "The decrease in industrial production was on the whole expected, although the drop slightly exceeded our expectations."
Ruta Eier, an analyst with SEB Bank, said the trend in industrial production is clearly downward, and volumes diminished faster than expected in March.

Lauri explained that the forestry products industry is affected by overall low economic activity and more costly raw material, while output in the food industry has declined due to the soaring prices of groceries. Consumers are giving up expensive domestic products, and this is particularly obvious in the dairy industry, she observed.
On the bright side, Eier singled out the relatively good results of exporters and the fact that the share of export in industrial production was on the rise.
"Against the background of the general decline, it's good to see the increase in exports of metal products, chemicals and electrical machinery, which gives hope that perhaps other branches of industry will also manage to reorient themselves to exports more rigorously," said Eier.

Lauri was skeptical about the future outlook. "There is no reason to think that the production of building materials, the wood industry or light industry will start showing positive growth numbers in the near future. How the food industry will fare depends on producers' pricing policy," he said.
Estonia's economy is undergoing a rapid downturn 's perhaps even a hard-landing 's and GDP growth could sink to 3 percent or lower this year.
According to the statistics office, the share of exports in manufacturing has been growing steadily and exceeded 60 percent in March.

Remarkably, the output of electric energy decreased in March by 23.8 percent in comparison with the same month a year ago, to 762 gigawatt-hours. The drop was caused by a fall in exports and partly by the replacement of own production with imports, according to Statistics Estonia.