Flash comment: Latvia - August 30, 2016
Average gross wage up by 3.3% year-on-year in Q2 2016

• Gross wage growth decelerated to 3.3% in Q2 2016

• Wage growth has become more volatile

• Wage growth forecast at about 5-6% this year

Average gross wage growth continued slowing down in the second quarter of 2016, partly owing to a much slower increase in the minimum wage this year (+2.8%). After growing 5.9% year-on-year in the first quarter, the wage growth decelerated to 3.3% in the second quarter. Monthly data are rather volatile. For example, in April the wages increased by 1.7% on average, while in May the increase was 4.7%. These fluctuations may be a sign of uncertainty.

The number of people working in the construction sector decreased by about 10 000 in the first part of this year compared to a year ago. At the same time other sectors managed to employ more people, and the total employment even edged up. However, the decrease in unemployment rate was slower than expected. The construction sector may have negatively affected the sentiment in the private sector. Data show that the private sector average wage growth in the second quarter was the same as in the whole economy, but two times smaller than in the first quarter.

The average net wage in the second quarter was 2.9% higher than a year ago. The negative inflation contributed to the households’ purchasing power, which increased by 3.6%. Despite an increase in the non-taxable minimum threshold this year, the net wage is growing slower than the gross wage. This inconsistency may be explained by the introduction of the solidarity tax this year.

Outlook

The economic growth this year is slower than expected largely on the back of an investment slump. The delay in the EU funds absorption has mostly harmed the construction sector. However, as the EU funds flows resume in the second half of this year, the construction sector is expected to recover exerting a positive effect on the whole economy. More rapid economic growth and falling unemployment will push wages higher. We expect that the wage growth will be around 5-6% this year.


For more information please contact Ms. Agnese Buceniece, +371 67445875, agnese.buceniece@swedbank.lv 

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