Latviski English По-русски
Friday 18.08.2017 | Name days: Liene, Helēna, Elena, Ellena, Liena

Economists warn about Latvia's job market risks in the near future

(+1 rating, 1 votes)

Baltic news, News from Latvia, BNN.LV, BNN-NEWS.COM, BNN-NEWS.RULatvia is expected to experience a rather rapid economic growth in 2013 and 2014 – nearly 4-5% per year. Exports and investments gradually become stronger. External demand increases as well, as reported by Swedbank economists.

Increase of wages and number of employed persons will depend on households’ consumption. Unemployment will continue to decline in Latvia. Inflation will remain moderate. However, this outlook has a number of hidden risks. The main risk is the overheating of Latvia’s job market – this risk will likely become more apparent in 2016, as Swedbank’s experts warn in the latest economic outlook.

The job market is currently the main risk for Latvia’s long-term economic growth. If it does grow significantly in the next couple of years, it will definitely exceed growth rates of productivity. At first, it will likely increase consumption and provide a more rapid GDP growth. However, if the rise of wages is more rapid than productivity, this reduces competitiveness and creates additional risks. As expenses increase, competitiveness drops and exports stagnate. As a result of this, residents lose optimism and the will to spend money, as well as entrepreneurs’ will to invest. A rapid growth rate increase of Latvia’s GDP will likely be followed by a steep decline.

According to Swedbank’s economist Lija Strasuna, wage rise is necessary to improve the standard of living and reduce emigration. However, any wage rise has to be well-earned. Unearned wage rise would mean additional expenses for entrepreneurs, which would reduce their competitiveness and cause financial problems. This may result in the need to lay off workers, and this would add to the rise in unemployment once again. Latvian enterprises understand this rather well. They invest mostly in plans to increase productivity. But entrepreneurs can only do so much.

According to her, an effective way of reducing these risks would be by performing structural reforms to contribute to work productivity. Years of economic growth are perfect for performing reforms. Unfortunately, the current rapid economic growth and the nearing of elections reduce politicians’ will to perform reforms. It means the inequality in the job market will gradually increase.

Economic growth in the world and Europe gradually becomes stronger, mood improves and interest rates will remain low for a long time. This is why Latvia’s economic growth will remain dependant on export in the next couple of years. Inflation will likely slow down households’ consumption rates. Nevertheless, households will earn and spend more. Households’ consumption will likely grow more rapidly than export this year. However, the latter will take the lead again in 2015.

In Q3 2013, export volume was lower than the year before, and the decline was short-term. It was largely due to the record harvest of grains in 2012 and Liepājas metalurg problem last spring.

As it was predicted by Swedbank’s economists, last year’s investment activity was very weak. Investment activities are expected to rise in 2014 (especially in the private sector) because of two reasons. First of all, the need for investments is large. This is dictated by the necessity to develop infrastructure and increase productivity in order to reduce pressure on expenses and competitiveness. Secondly, enterprises have the ability to invest – the debt burden has declined and deposit volume has increased and interest rates are low. Rise of investments will slow down in 2015, because enterprises will likely put off their plans in expectation of a new EU fund planning period.

Unemployment continues to decline in Latvia, it will become harder and harder for enterprises to find employees. Salaries will grow. It is expected that employment in Latvia will grow 1.5-2% in the next couple of years. The proportion of job seekers will decline 10% in 2015. This will increase the pressure for wage rise. The average gross salary in Latvia could grow 6-7% in the next couple of years.

Inflation will remain moderate and mostly with no unpleasant surprises, because the pressure of growing domestic factors will be limited by global price dynamics. Lower natural gas and heating tariffs will partially compensate the rise of electricity tariffs and the planned rise of water supply tariffs in Riga this summer. Rise of food prices is expected to be moderate. This is largely because of beneficial price fluctuations in the world. This year’s inflation in Latvia will be within 2.5%. Consumer price rise of 2015 will be slightly more rapid (this includes fluctuations of euro and dollar exchange rate). However, it will remain below 3%.

The European Central Bank is waiting. According to economists, the bank will likely retain the base rate of 0.25%. However, if inflation continues to reduce, new support measures will be introduced. Much will depend on the formation of a banking union, bank stress test results and consecutive actions. Political decisions will be vital in many countries that will be required to adapt to the rise of interest rates and China’s slower economic growth, economists say.


Leave a reply

Latvia’s export growth was moderately rapid in the first six months of 2017

Compared with the same period of 2016, Latvia experienced a moderately rapid export growth in the first six months of 2017, according to data published by Eurostat on Thursday, 17 August.

Latvia’s annual inflation in July was one of the highest in Europe

Inflation indexes in Latvia and the UK both reached 2.6% in July, which is one of the highest indexes in the European Union, according to data published by Eurostat on Thursday, 17 August.

Kirsis withdraws his candidacy in favour of Aseradens

Riga City Council member Vilnis Kirsis has decided to withdraw his candidacy from the race to become chairman of Unity in favour of a different candidate – Economy Minister Arvils Aseradens.

Rinkevics expresses Latvia’s interest in maintaining political consultations with Palestine

On Thursday, 17 August, Latvia’s Foreign Affairs Minister Edgars Rinkevics met with the leader of Palestine’s diplomatic mission in Latvia, ambassador Taissir Al Adjouri, to discuss mutual relations between Latvia and Palestine and the peace process in the Middle East.

Putin grins to the world’s seven billionth baby, Lithuania wary of border incidents

Russian President Vladimir Putin paid a visit this Wednesday to Kaliningrad, the westernmost point of Russia, but the reports about his trip in the Russian enclave and over the border in Lithuania were strikingly different.

Survey: red considered the safest colour for a car

Most Latvian drivers consider red to be the safest colour for a car. The most popular, however, is black, according to results of a survey by Virši-A fuel trader.

airBaltic’s number of carried passengers reaches a record in second consecutive month

Latvian airBaltic airline carried 393,312 passengers in July 2017, which is 21% more than the same period last year. The number of passengers carried by airBaltic remains the highest it has ever been in the airline’s history, BNN was informed by the company.

Brivais vilnis: nearly all fish processing companies are experiencing losses

Currently nearly all fish processing companies in Latvia are experiencing major or minor losses, says Brivais vilnis chairman Arnols Babris.

American helicopters to perform low-altitude flights within Latvia’s airspace

U.S. Air Force Brigade’s Task Force Phoenix helicopters, which are stationed in Latvia as part of Atlantic Resolve operation, will be performing low-altitude flights from 16:00 to 18:00 from Lielvarde to Dobele on Friday, 18 August.

Healthcare Ministry’s state secretary Karlis Ketners may be replaced

Latvian Healthcare Ministry may replace its state secretary Karlis Ketners. It is possible he will be transferred to work at Finance Ministry, as reported by LTV.

Suspects in Europe's insecticide egg scandal before Dutch court

In the Netherlands, two men have been in court in relation to the scandal of eggs containing banned insecticide that has caused an EU-wide health scare and cost millions of euros of damages.

Indian national with fake documents apprehended on Latvian border

An Indian citizen travelling from Moscow on a bus was caught at Terehovo border control point in Latvia for presenting officers a fake EU family member’s resident card. No criminal process was launched. The person returned to the country he was travelling from.

Latvijas dzelzceļš will not have to pay dividends from last year’s profits

The government decided on Wednesday, 16 August, that Latvijas dzelzceļš will not have to pay dividends from last year’s profits, which were EUR 880,998.

Latvian citizenship provided to 103 people

The Cabinet of Ministers has issued an order to provide Latvian citizenship to 103 people through naturalization.

Estonian Inbank's profits reach EUR 5.7 million in six months

Estonian financial services' provided Inbank made a profit of 5.7 million euros in the first half of 2017, which is a 429.4% increase compared to the respective period in 2016.

Agriculture Ministry invites residents to sign up for measures to support fisheries

From 21 August onward, Rural Support Service plans to start accepting applications for projects to receive support from European Maritime and Fisheries Fund’s action plan for development of fisheries in 2014-2020 as part of projects Innovation, Productive Investments in Aquaculture and Fishing and Aquaculture project processing.

Estonia seeks to improve reputation of state as employer

As the Estonian Ministry of Finance wishes to boost the reputation and brand of the Baltic country's public sector, it has announced a procurement tender aimed at preparing an action plan for reaching these goals.

Warning: there may be short-term problems with Swedbank internet banking functionality

Because of Swedbank’s planned IT modernization work scheduled for the night to Thursday, 17 August, there may be short term problems with payment card and internet banking functionality, the bank warns.

Aseradens: neither Usakovs nor Lembergs should be allowed to become prime minister

If he became chairman of Unity, Economy Minister Arvils Aseradens would mobilize democratic forces to prevent the possibility of either Aivars Lembergs or Nils Usakovs becoming prime ministers, Aseradens said in an interview to 900 seconds programme of LNT.

Caksa believes increasing wages for doctors would improve politicians’ credibility

The planned wage increase in healthcare could be the first step towards improving politicians’ credibility, says Healthcare Minister Anda Caksa.

Bill Gates donates USD 4.6 billion, reduces shares in Microsoft

The co-founder of the U.S. computer software firm Microsoft, Bill Gates, has allocated to charity 4.6 billion U.S. dollars (3.9 billion euros), which is the philanthropist's highest donation since the year 2000.

LOSP proposes using electronic packing slip system to reduce fraud

An electronic packing slip system for goods would be invaluable for agricultural goods, because it would help push out and reduce VAT fraud, says Latvian Agricultural Organisation Cooperation Council.

Latvia and Russia agree on exchange of additional 3,000 universal permits for cargoes

Latvia and Russia will exchange 7,000 universal permits for international cargo transports in 2017. This will be the largest universal permit volume in the past 15 years, as reported by Road Directorate.

Sierra Leone hit by tragic mudslide

A tragic mudslide has taken place in Sierra Leone, where flooding in the capital Freetown caused a mudslide, in which nearly 400 people have been have died.

Talks with potential KVV Liepājas metalurgs buyers to conclude in August

Talks with potential buyers of the insolvent KVV Liepājas metalurgs will conclude at the end of August, says representative of the company’s insolvency administrator Dzintars Hmielevskis.