Flash comment: Latvia - February 26, 2016
Annual gross wage up by 6.8% in 2015
  • Gross wage growth accelerated slightly to 7.4% in 4Q 2015 (from 7.3% in 3Q)
  • Average gross wage up by 6.8%, real net wage grew by 7.4% in 2015
  • Wage growth to remain strong this and next year

Gross average wage growth in the last quarter of 2015 accelerated slightly, to 7.4% in annual terms, making the growth for 2015 overall at strong 6.8%. Gross wages last year grew by 7.9% in the private sector and by 5.2% in the public sector. The growth of purchasing power was even swifter – the average real net wage was up by 7.4% in 2015.




Average wages grew in all sectors, but the growth was sifter than the total in accommodation and catering (10.6%), operations with real estate (9.9%), art and entertainment (9.3%), domestic trade (9.0%), manufacturing (8.5%) and construction (7.9%). Apart from manufacturing, these industries are largely domestic demand oriented, and it seems that the robust domestic demand supported the strong growth in these sectors. Data on household consumption basket weights already have shown that cheaper fuel and heating allowing households to increase their spending on services, e.g. catering and accommodation.




Household consumption (up by 3.6% in the first three quarters of last year), though, was still rather cautious, e.g., growing less than income. Households also continued to save – household bank deposits were up by 6.3% annually last year. Yet it must be noted that overall household income growth was slower than the growth in wages. Average old age pension grew by 2.7%. But, for instance, resident transfers from abroad, which also make a somewhat noticeable share of total income, decreased last year compared to 2014.

Outlook
Unemployment rate gradually reaching the structural level, labour force diminishing, and emigration risks due to much lower income levels compared to wealthier EU countries will continue to add pressures on wage growth. We expect the average gross wage growth to grow by around 6% this and the next year. This is considerably faster than the current growth of average income per employed in eurozone, thus posing risks to competitiveness.



For more information please contact Mr. Andrejs Semjonovs, +371 67445844, andrejs.semjonovs@swedbank.lv
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