The National Statistics Office recently published data on industrial new orders, which is meant to provide an indicator of the development of the demand for goods and services, thereby providing an insight of what future production may be.

The data itself is divided into export orders and orders emanating from domestic demand, as well as into various product categories. The NSO itself did state that the data is provisional as the methodology used still has to be refined.

Even so, it still needs to be emphasised that it is not always the case that an order book transforms itself into actual production, even though it is still a very good indicator of what future activity in the manufacturing sector is likely to be. Looking at this data month by month, one needs to take into account the seasonality issue together with the possibility that a delay in the placement of an order or having an order being placed early may distort comparative results.

Because our economy is small, we do not always have compensating factors coming into play. This is another reason why caution needs to be used in assessing this data.

On the other hand, countries do place a great deal of emphasis on the level of the order book in the manufacturing sector. Thus, although caution would always be required in interpreting the data, the indications obtained are always interesting to note, as they provide a pointer on the performance of the economy.

The information is provided in terms of indices. As such, the relative importance of each segment within the manufacturing sector is ignored and a significant increase in orders in one segment may only have an insignificant increase in the whole of the manufacturing sector, given the small size of that particular segment.

These qualifications become necessary such that matters are placed in their proper perspective. On this basis, the indications that are obtained point once more to a resilient manufacturing sector that is capable of withstanding the pressures and the challenges of an international economic slowdown and is also capable of exploiting the opportunities offered by a recovery, even if such a recovery has been described as mild by several analysts.

The clothing segment and other traditional segments did continue to show decline in orders during most months of 2004 when compared to 2003. However, the segments that have been the key drivers of the Maltese manufacturing sector in recent years, namely chemical products and light engineering products, registered a growth in export orders in 2004.

Another important feature to note is that the domestic market continues to provide little scope for expansion of the manufacturing sector. As import barriers in the form of levies, etc, have continued to be removed totally, manufacturing companies that produce for the local market have come to recognise that the only way to thrive is to seek export markets. In fact, one notes a drop in orders originating from the local market across the board throughout 2004 when compared to 2003.

Looking at the January 2005 figures, one notes a further strengthening of the manufacturing sector. In fact, in some instances, for example in the clothing sector, one notes an increase in orders, with some of this growth coming from the local market.

It has already been noted in my contribution last week that, in volume terms, exports are on the increase, even if in monetary terms they may be showing a decrease. The increase in order books points towards a consolidation of this growth potential of the manufacturing sector.

The manufacturing sector does not operate in a vacuum in this country. Manufacturing firms face issues of competitiveness like all other firms.

The call by the Governor of the Central Bank of Malta in the annual report of the Bank for a concerted effort to strengthen this competitiveness is very relevant.

It is sometimes felt that the rest of the economy takes the manufacturing sector for granted.

Some companies have been here for so long, that it is felt that they will remain here come what may. Very little heed is taken of the challenge that they have to face daily to produce better quality for a lower price while costs keep on rising.

The decision to increase interest rates last week, even if taken with the best of intentions to support the value of the Malta lira, will have a negative impact on manufacturing firms. On the other hand, the fact the Malta shall be maintaining its Objective One status within the EU should ensure that investment incentives available to the manufacturing sector will be kept.

Managements in manufacturing sector would tell you that every little bit counts, be it on the down side, be it on the up side. The manufacturing sector generates jobs and creates significant wealth in the economy. The level of its order book is something that we should keep a watchful eye on. So far the barometer points to fair. We need to work hard to make it stay that way.