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Monday 24.10.2016 | Name days: Renāte, Modrīte, Mudrīte

Economic Diary of Latvia. Robots will do all the work

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The Central Statistical Bureau of Latvia published information about the country’s level of unemployment this week. Once again this data forced many to ask themselves who will be working in the country a couple of decades from now.

Baltic news, News from Latvia, BNN.LV, BNN-NEWS.COM, BNN-NEWS.RUThe good news is that the level of unemployment has reduced by 0.4% in Q2 2015. Latvia’s current level of unemployment stands at 9.8%. It is one of the best indexes in Latvia’s post-crisis period. However, experts note that Q2 is traditionally one of the most economically active periods. With that, decline of unemployment level only serves to demonstrate slow development rates of the national economy.

Now the bad news: in spite of the reducing number of unemployed people, structural changes in the labour market’s current state are becoming more apparent. This is the growing share of the unemployed people and the reducing share of young job-seekers. According to the latest data, the number of young people annually declines by 5.7%. The proportion of young people among residents is also in decline. While in 2005 every fifth resident was a youngster, by 2010 their proportion declined to 17% and 14% by 2015.

According to estimates of the European Commission, there will soon be 1,400,000 people living in Latvia. The population is ageing and young people continue leaving the country to find better jobs abroad.

As strange as this may seem but negative demographic trends have contributed to the rise in economic activity and reduction of unemployment. For example, the decline in the number of students automatically increases the level of activity of older people. The number of non-working pensioners is also in decline. This may be partially because of the increased retirement age or because employers have no one to choose from.

The level of activity of the working population has reached 67.5% – the last time this level of activity was noted in Latvia was in the middle of 2008. Growing investments into automated equipment that can help reduce the number of active workers seem like a logical response to the situation from the perspective of employers.

Lowered inflation

Unemployment is not the only thing that has reduced in Latvia – consumer prices have reduced as well. July’s index reduced quite notably – by 1%. Moderate inflation in usual for July. However, according to economists, 1% reduction of prices of goods cannot be called moderate. Such a rapid decrease was affected by a bigger, in comparison with other years, seasonal reduction of prices on clothes and footwear (by 7.9%) and stronger decline of prices on vegetables (16.8%).

Additional pressure came from cheaper oil – gas tariffs that rely on oil had declined by 8.7% and prices on heating energy declined by 3.6%. The declining price of black gold has not yet been reflected in fuel prices – the price had declined by a mere 0.3% in July. It is expected that the price decline will continue in August.

As a result, annual inflation index has dropped to zero. This means that the general price level is currently the same it was in 2014. There have been changes over the course of the year. For example, prices of goods have become 1% cheaper. Price of services, on the other hand, have risen 2.6%.

Economists predict price rise will be modest in the next several months. The expected rise of excise tax in August will contribute to the rise of taxes. More expensive education may also push inflation – University of Latvia has announced increased tuition fees for some of its education programmes in the next school year. Price rise will become more rapid by the end of the year, because the positive effect of the decline of oil prices will wear off.

Silent like fish

The two weeks in which Russian food and veterinary services promised to lift the ban on exports of Latvian fish products have not yet passed. Nevertheless, Latvian government has already begun work on approving the Cabinet of Minister’s project of rules aimed to provide assistance to local fish processing companies. According to this document, Agriculture Ministry will allocate EUR 44.6 million for the development of enterprises in this field before 2023. Money will be provided for the construction of production facilities. It is planned that this funding will allow companies to become modern and more competitive. Labour efficiency will rise and so will revenue.

In order to make the process of submitting applications easier, Rural Support Service will release guidelines for filling in applications.

Naturally these rules do not provide an answer to the question: where will the new products be sold? It is possible the government knows more. And this is why they are certain the Russian market will open up once more for Latvian products. Maybe they don’t.


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