Flash comment: Latvia - February 21, 2017
Unemployment rate decreased to 9.3% in the Q4 of 2016

• The unemployment rate down to 9.3% in 4Q 2016 (vs. 9.8% a year earlier), on average 9.6% in 2016 (vs. 9.9% in 2015)

• Employment down by 3 thsd or 0.3% last year

• The unemployment rate expected to decrease more rapidly this year, to about 8.5% on average

The unemployment rate and the number of employed declined at the same time last year. The unemployment rate fell to 9.3% year-on-year in the fourth quarter (vs. 9.8% in Q4 of 2015), 9.6% on average throughout the year (vs. 9.9% in 2015). The number of employed declined by almost three thousand or 0.3% on average. The labour market last year was a good reflection of the slow economic growth with a delay in the EU funds inflow and crisis in the construction sector. The low growth motivated companies to improve efficiency and reduce cost, which could explain some of the fall in the number of employed. The decline in the unemployment rate was mostly the impact of shrinking population.


Shrinking population has helped the employment rate to pick up to almost 62% last year. The activity rate continued improving, and it still remains at the historically high 68%. Improvement in the participation rate can be explained by an increase in the number of pre-retirement age people and their activity rate, as well as the decrease in the number of young people (15-24 years old), whose activity rate is lower.

Employment dynamics last year was rather different across industries. From the largest industries employment declined in construction, domestic trade, and transport and storage sector, while the industry showed an increase in the number of employed.


Outlook

We expect the investment activity to pick up in 2017, lifting the construction sector out of the recession and helping the labour market. However, such scenario is highly dependent on the EU funds, whose inflow has been quite slow so far. It should accelerate this year, but the uncertainty remains as to when exactly it happens. The longer is the delay, the smaller will be the benefit for the labour market and the economy as a whole this year. The economies of the main trading partners show stable growth. If the manufacturing sector is able to increase its export volume, the demand for labour is likely to grow in this sector. Russia will continue shifting its export flows away from Latvia’s ports, which means that the number of employed in the transit sector will likely continue falling. Overall the number of employed is likely to somewhat increase. The unemployment rate will remain on the declining path, falling to about 8.5% on average this year.


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

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