Flash comment: Latvia - August 28, 2015
Annual gross wage growth at 6.9% in 2Q 2015
  • Average gross wage grew by 6.9% in 2Q 2015 (up from 6.3% in 1Q)
  • Average real net wage was up by 6.6% in 2Q 2015
  • Household spending still seems to grow slower than incomes

According to the data by Central Statistical Bureau (CSB), gross average wage growth in the second quarter of 2015 was 6.9% in annual terms, up from 6.3% in the first quarter (which was also revised upwards). Note, there was a minimum wage hike by 12.5% as of January 2015 (same as a year ago). The higher-than-average wage growth was observed in such big sectors as manufacturing (8.6%), construction (7.7%), domestic trade (8.9%), accommodation and catering (9%), IT and communications (9.7%) – i.e., those sectors, where employment fell or stagnated in the first half of the year. Improving productivity allow to raise wages for remaining employees, but note - when companies invest into machinery and reduce a number of necessary employees, less-paid and lower-skill jobs usually suffer. Thus the average wage might grow swifter than that of remaining employees. In transport and state administration and defence, where employment was still growing, wages grew slower than the average (3% and 6.3%, respectively).



Household incomes thus continue to rise rapidly. The average net wage grew by 7.5% (personal income tax was decreased by 1 percentage point as of January 2015), while real net wage (i.e., purchasing power of employees) was up by 6.6%. Household disposable incomes are certainly growing slower than that (since employment growth is weak, pensions and other incomes also rise slower), but private consumption still seem to grow less than incomes. Retail trade grew by 5.1% in annual terms in the second quarter (4.9% in July), sales of cars and motorcycles by 13%. Yet, household consumption is unlikely to have grown by more than 3% in the second quarter (data will be published on Monday). Household deposits in July were by 9% larger than a year ago.



Outlook

With the unemployment rate diminishing and wage pressures rising, gross wage growth is expected to remain strong (it will be swifter than our current forecast of 5%) and support private consumption. Wage growth is still outpacing productivity growth – so far this has not harmed competitiveness, but risks are rising for the coming years.

 


For more information please contact Ms. Lija Strašuna, +371 6744 5875, lija.strasuna@swedbank.lv


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