Latvian economy cycle heatmap

Quarterly the Council, similarly to other EU member states' independent fiscal institutions, prepares the Latvian economy cycle heatmap.

Observations from 2000 1st quarter till 2020 4th quarter available in MS Excel format here.

 The labour market situation was unfavourable in 2020, but despite the economic downturn caused by Covid-19, wages continued to rise. Compared to previous years (2018, 2019), the growth rate was slower, however, wage growth continued even in the second quarter of 2020 (+ 4.3% compared to the second quarter of 2019), when the strictest measures to control Covid-19 are in force. It should be noted, however, that the increase in wages in the second quarter was the smallest during the year. In 2020, compared to 2019, the average monthly wage increased by 66 euros or 6.2%, and in the context of Covid-19, the increase was caused by the redundancies and redistribution of job responsibilities and workload among the remaining employees. The internal migration of employees from low-paid jobs in the Covid-19 affected sectors to sectors with higher average wages had an impact on wage growth. Covid-19 period bonuses for employees with an increased workload in high-risk conditions also contributed to the increasing of average wages.

Eurostat data on the unemployment rate in the fourth quarter of 2020 will be published in the near future, but based on the currently available CSB data it is known that in the fourth quarter of 2020, compared to the third quarter, the unemployment rate decreased by 0.5 percentage points and was 7, 9%. In the 4th quarter, the status of unemployed was 75.6 thousand inhabitants, which is by 5.8 thousand or 7.1% less than in the 3rd quarter. In general, in 2020, the number of unemployed increased by 28.4% compared to 2019. In 2020, a total of 893 thousand or 64.2% of the population aged 15 to 74 were employed in Latvia.
The number of vacancies available in 2020 compared to 2019 decreased on average by 33%, the most available vacancies decreased in the last quarter of the year (-10.8 thousand, compared to the 4th quarter of 2019).
Capacity utilization in the economy decreased on average by 5 percentage points in 2020, with the largest decrease (-8% points) observed in the second quarter of 2020. In its turn, in the 4th quarter of 2020. compared to Q4 2019. capacity utilization fell by 3 percentage points. Lack of demand as a limiting factor in various sectors manifested itself in different quarters of 2020, however, this limiting factor was most often mentioned by entrepreneurs throughout the year. The pandemic affected industry less. At the same time services like tourism, passenger transport, catering, hotels, culture suffered more. Although the impact on a number of personal services (eg beauty care) is not yet seen in the 2020 figures.
The economic sentiment indicator showed negative records throughout 2020, and in the second and fourth quarters, its indicators were comparable to the observations of the global financial crisis. The economic sentiment indicator reflected the impact of Covid-19 constraints, uncertainty about global economic developments, and the impact of the second Covid-19 wave at the end of 2020.
The volume of lending in Latvia remained low even before the Covid-19 crisis, however, the volume of loans issued during 2020 decreased even more - on average by 4.6% compared to 2019.
Latvia's foreign trade balance was negative in 2020 (-6.5% of GDP), and the decline in exports of services had a significant negative impact on its indicators in the second and third quarters of 2020.
In 2020, a current account surplus of 2.9% of GDP was observed. This indicator reflected the impact of Covid-19 on the international flow of goods and services and settlements. Overall, current account balances in recent years have been characterized as sustainable and resilient within the limits set by the EU Early Warning Mechanism.
The shock of external events related to the Covid-19 restrictions sharply reduced core inflation rates, below euro area values. At present, core inflation rates in the euro area and Latvia remain below 1%, below the euro area inflation target of 2%.
The Covid-19 crisis has also affected the situation in the real estate market, which has also been reflected in the decline in house price indices. Overall, both the risk of unemployment, the prolonged uncertainty about the timing of the economic recovery and low lending activity keep house prices at their lowest levels in recent years.
The composite heat index indicates a phase of economic downturn, but its depth cannot currently be compared to the effects of the global financial crisis. At the same time, it should be noted that the effects of the previous crisis are not being repeated in a similar way. The indicators observed on the heat map that have been most sensitive to the Covid-19 crisis are average wages, economic sentiment, core inflation and house prices.

 

Source: Central Statistical Bureau, Bank of Latvia, Eurostat, FDC calculations 

Last modified : 23 March 2021