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Bank analysts: unemployment decline might stop in Latvia next year

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Agnese Buceniece, Mārtiņš Āboliņš, Pēteris Strautiņš, Dainis Gašpuitis, Swebank, SEB Bank, Luminor, wages, employment, Latvia The unemployment level decline in Latvia will become slower or even stop next year, according to bank analysts.

Swedbank senior economist Agnese Buceniece says under slower economic growth demand for labourers will gradually calm down. The first signals for this came up from business surveys.

«Although labour force shortage remains a significant force behind wage growth, it seems its influence is starting to gradually decline. Survey results also show the ratio of companies that mention shortage of labour force as one of the main limiting factors continues to reduce. While in Q2 there was slightly more than a quarter of private sector companies (except for agriculture, mining and trade industries), by the end of the year their numbers had declined to less than one-fifth,» says Buceniece.

She predicts the unemployment level decline will soon stop and next year it will be close to this year’s – slightly above 6%.

«With unemployment remaining low, pressure on wages will remain,» stresses Swedbank senior economist.

SEB Bank macroeconomic expert Dainis Gašpuitis says in Q3 2019 unemployment levels in Latvia had declined to 6%.

He also says the last time Latvia had an unemployment level equal to the one reached in Q3 2019 was 13 years ago – in Q3 2006. It was lower for a very short while in Q3 and Q4 2007, when it was 5.6% and 5.3%, respectively. The trend turned around later on and was not far from the highest point of unemployment: in 2010 it reached 21.3% in Latvia.

«Something like this is not expected to repeat again and the economy will continue growing slowly, which also means a need for workers,» stresses Gašpuitis.

He also says demography is unrelenting – in Q3 917.8 thousand or 65.6% aged 15 to 74 were employed in Latvia and, although the employment level has increased 0.3 percentage points, the number of employed people is 2.3 thousand less than a year ago. This way the unemployment level may continue declining if only slightly.

«Strong regionalism and skill difference, which is further increased by weak mobility, limits Latvia’s ability to reach the unemployment level observed in many developed EU member states,» says Gašpuitis, predicting that Latvia may reach the lowest unemployment level in 2020.

He mentioned that aside from construction, demand will decline for low-qualified works whose ability or interest to engage in other industries may not be sufficient. Cases when companies will decide to lay off employees to control costs are also expected.

«Demand for workers will not reduce much, especially in specific industries and among highly qualified specialists. This is why unemployment will drop below 6% in Q2 and Q3 next year. Annual average unemployment level is expected to be 5.9%. But this may as well be it, before it exceeds 6% again later,» said Gašpuitis.

Luminor economist Pēteris Strautiņš mentioned unemployment reduction will definitely slow down or stop entirely next year.

«I expect the ratio of job-seekers to be around 6%. The biggest increase of the number of employed people is expected for rapidly growing service export sectors – commercial services, and IT services. This means people employed these have no reason to worry about losing jobs. People who have knowledge and skills in metalworking and mechanical engineering will have an easy time,» says Strautiņš.

Citadele Bank economist Mārtiņš Āboliņš said he expects no major changes for unemployment dynamics, but with slower economic growth rate unemployment decline will become slightly slower.

He predicts Latvia’s total unemployment level will be slightly below 6% next year and as close to 5.5% at the end of the year.

Read also: Unemployment level in Latvia increases to 5.8% in November

«Demand for workers with varied skills will remain. However, similarly to the economy as a whole, demand for IT workers will exceed supply. However, following slight decline of decline in construction sector, demand for construction workers may not be as strong as before,» says Āboliņš.


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