At the same time, there are signs that the decline in our country’s economy could end soon, as the outlook for the future is gradually getting brighter in some sub-sectors of the trade and service spheres. It should be noted that in all the main spheres of the national economy, where the mood of companies is evaluated, depending on the sector, there is a very large proportion of companies that currently do not experience any limiting factors of economic activity. According to the results of company surveys, it can be said that the economy as a whole is currently trying to find a balance between a possible further decline and opportunities to start recovering from the previous recession. Economists attribute the main expectations regarding the recovery of the economy to the fact that the rate of wage growth in Europe, including Latvia, could currently be faster than the price increase, thus, at least conditionally, the working part of the society becomes wealthier. However, in order to understand what the real purchasing power of the population is, and to a large extent the resulting economic situation, it is important to understand what period of time we are talking about.
We have not recovered from the blow of inflation
It is clear that, taking the latest inflation indicators and comparing them with the period of a year ago, the average working person in Latvia seems to have become wealthier. However, it should be taken into account that the biggest economic troubles and inflation started already in 2022, therefore, a correct assessment of the situation about how the solvency of the population has changed recently, should calculate the situation since the beginning of 2022. If the situation is evaluated from the mentioned period to the third quarter of last year, then the indicator of changes in the purchasing power of the working people is relatively unattractive. Between the beginning of 2022 and September of last year, consumer prices in Latvia have increased by 23.1% in general, according to the data of the Central Statistics Office. However, at the same time, the increase of the average salary received “on hand” from the 4th quarter of 2021 to the 3rd quarter of last year reaches 15.1%. True, the situation is slightly better for the so-called typical workers, with the average net median salary increasing by 21.7%. Thus, it can be said that during this time period the purchasing power has rather decreased than the other way around, besides, as has already been written many times – the median salary with all the increase is very small and in the last quarter of last year it reached only 932 euros. At the current price, what can be bought for such a salary, everyone can judge for themselves, but it is unequivocally clear that with such a salary, the economic potential of the population is not great even against the background of the broad segment of consumer goods, not to mention getting involved in the purchase of new cars or housing. It should be noted that the real income of the population is also reduced by the increased interest rates on loans, thus the amount of money available to the economy has shrunk more than inflation has overtaken the rise in wages in the last couple of years. Therefore, the rather gloomy mood in the construction and manufacturing industry sectors is natural. It should be noted that until recently the latter was Latvia’s largest economic sector and also saved Latvia from a significant economic recession during the covid crisis. Now there is little joy for the industrialists, but some data say that it is not bad at all. In any case, there is nothing close to what we experienced in 2008, and for now there is no reason to say that something like that is on the horizon of the future of the economy.
Both demand and labor are lacking
If we were to look at the confidence data calculated by the statisticians of our once main industry just mentioned, then they have been negative since the spring of 2022. Here, however, it should be added that the spectrum of activity of the manufacturing industry is quite wide, and the mood of entrepreneurs can differ significantly. In the manufacturing industry, the confidence index is calculated for 23 sectors. In December, compared to November, there was an increase in the confidence index in 12 sectors, a decrease in 10, but in one sector the mood of entrepreneurs did not change. However, as can be understood from the results of company surveys, the range of problems is quite wide. In December, 52% of entrepreneurs in the manufacturing industry cited insufficient demand as a limiting factor. Lack of manpower and lack of materials or equipment were noted by 15% and 14% of respondents, respectively, while financial difficulties were mentioned by 13%. The influence of other limiting factors was indicated by 8%, while 23% of entrepreneurs in the manufacturing industry did not feel any limiting factors of economic activity in December, which can certainly be considered as promising news if we ask ourselves how the Latvian economy will develop this year. It can be said that good news alternates with bad, and this is not only in industry, but also in other areas of the economy. For example, with regard to construction, statisticians indicate that the sentiment of companies in it is “stable negative”. For example, in December, compared to November, the prospects of companies in the sector regarding changes in employment in the next three months were assessed lower (here, however, seasonal factors may be to blame, as it is winter outside), and the assessment of the overall level of orders was also reduced. It must be said that the assessment of builders is not as pessimistic as in the manufacturing industry. 29% of survey participants complained about the lack of demand. At the same time, the number of companies that did not experience any limiting factors for their economic activity is quite similar.
In times of contrast
A similar number of companies that do not feel factors limiting their economic activity have also been in retail. In December, 22% of the surveyed retailers gave this answer. On the other hand, the number of such companies in the service sector has reached as much as 37%. However, given the wide spectrum of business, the mood in the service industry is as motley as a woodpecker’s belly. At the same time as a large proportion of companies, which are not hindered by anything, the activity of almost half – 40% of entrepreneurs – was significantly limited by insufficient demand in December. This indicator has had an upward trend over the last year, but in December it reached the highest value – the highest since October 2012. A third, or 34%, of the surveyed retailers also state that there are certain implementation difficulties. If we look at the overall situation, the spectrum of companies’ answers gathered in the survey is quite appropriate to the economic events. On the one hand, there is a slight decline, but at the same time, for example, data on the volume of changes in manufacturing production shows that the sector is starting to recover. Among other things, from the previously deep minuses last November, with the volume of production, such an industry as woodworking, whose activity can be considered as a “litmus test” for the general economic situation of the world, announced itself. If it really has already started to improve, then this year we can claim even a small increase in welfare in Latvia.
2024-01-10 03:15:23
#effects #inflation #high #interest #rates #undermine #demand #business #sentiment
