At the moment, we are walking on a knife’s edge in this regard, because it is clear that with a long-term decline in production and export earnings, there will be nothing left to sustain a general increase in wages.
It is not clear where we are going
Changes in production volumes published by the Central Statistical Office indicate both economic factors that are still to come and those that have already become the past. For example, the decrease in the production volumes of our largest industry – the wood industry – indicates a very thorough relaxation of the global economic activity. The 10.7% decrease in volume in the seven months of the year compared to the corresponding period of the previous year can be attributed to both construction and global vehicle production slackening. The very impressive drop in production in the non-metallic mineral industry, where production fell by 18.8% during the year, is also suggestive of the first. On the other hand, there is also a drop in the Latvian car, trailer and semi-trailer industry, where production output in the seven months of this year has fallen by 10% compared to the same period last year, according to the data of the Central Statistics Office. In general, they report that in the period from January to July of this year, compared to the corresponding period of the previous year, the volume of production in the manufacturing industry as a whole has decreased by 6.2%. The same rate of decline was observed in July of this year compared to the seventh month of last year.
Interest rate defect
It is clear that with the rapid increase in loan interest rates, potential borrowers could become fewer than before. Less lending means fewer houses built and less demand for new cars. So there is no need for so much timber, metal products, car parts, less tons of cement and much less other things that even during the Covid-19 pandemic Latvian industrial companies could produce on a very large scale and sell in foreign markets. In addition, it should be noted that during the last year
in the eurozone, the rise in interest rates is much steeper than at the end of the so-called fat years ten years ago. However, the mass of debts has grown significantly, thus the possibilities of taking new loans are shrinking. This indicates that it will become increasingly difficult to increase volumes in the exporting sectors for durable goods. The situation is less complicated for consumer goods such as food or clothing.
However, as far as exports are concerned, in general, potential improvements in the situation could be observed when it becomes clear that the increase in loan interest rates is over and the course of the central banks in the opposite direction is expected. At this moment, various investment projects could be activated again, which will mean increasing construction volumes. So also a greater demand for wood, metal products and building materials. At the same time, the other spheres of the economy would also start to move and the overall demand would increase.
Not bad at all
Currently, the situation in the economy has developed according to a more positive scenario than could have been expected half a year ago. Pre-printed money keeps circulating in the economy and creates demand. The good news is that the economy is “pulling” along with inflation. This is also evidenced by the 12% increase in the average salary during the year, which is ahead of inflation and creates conditions for at least an increase in local demand. This can be more reflected in our food industry, but it can also leave some impression on other industries, including woodworking or furniture production. In the industry itself, everything is not all bad either. For example, in July of this year, the production of computers, electronic and optical equipment increased by 19.5% compared to the mid-summer month of last year, while a total increase of 34.4% was recorded in the seven months of the year.
2023-09-05 02:15:28
#Wage #growth #industrial #knife #edge
