Flash comment: Latvia - February 28, 2017
Wage growth will continue; companies should focus on increasing productivity

• Average monthly nominal gross wage growth 5% in 2016

• In the Q4 the wage growth accelerated to 5.6% year-on-year

• Household purchasing power growth 4.6% on average in 2016

The average monthly nominal gross wage growth slowed to 5% in 2016 compared to 6.8% in 2015. This growth rate was still way above productivity growth despite the delayed EU funds inflow, crisis in the construction sector, as well as much slower increase in the minimum wage. The Central Statistics Office revised up the data for the first three quarters of last year (Q1: 5.2%, Q2: 5.1%, Q3: 3.8% year-on-year), as they have adjusted their methodology. The wage growth accelerated to 5.6% in the Q4 year-on-year. The average net wage growth in 2016 (4.7%) was only slightly lower than the growth of wage before taxes. Almost non-existent average consumer price inflation last year helped the purchasing power of households to increase by 4.6%.

Outlook

This year the performance of the economy is closely related to the timely and successful implementation of the EU funds projects, which is still lagging behind. At the end of January the volume of projects with signed contracts reached only one third of the total allocation of the EU funds for 2014-2020 period. If this year’s plan is fulfilled, then about 600 million euros are expected to flow into the economy this year, helping to increase the investment and move the construction out of the crisis. The demand for construction workers will increase, increasing the number of employed and their wage in the sector. Developments in the construction sector will facilitate reduction in the unemployment rate, especially in the regions. However, even if new jobs are not created, the unemployment rate will fall due to demographic trends – the number of working age population is still shrinking, creating an upward pressure on wages. This year the monthly nominal gross wage growth could exceed 5%. It is good news for households, as they will be able to spend more. However, the companies should focus on raising productivity.


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

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