Each quarter, the Fiscal Discipline Council, like other independent fiscal institutions within the European Union member states, compiles a heat map of the economic cycle. Long-term data from the first quarter of 2000 to the first quarter of 2024 is available in MS Excel format [here].
In the first quarter of 2024, the composite heat map index was 0.05, reflecting a decrease of 0.1 percentage points from the previous quarter. Overall, it can be said that the result has not changed significantly since the end of 2023. In the first three months of 2024, Latvia's economy began to slowly recover from the stagnation experienced the previous year. However, these improvements remain fragile and uneven. Wages are rising, which is positive news for workers, and unemployment remains low. However, there is a disparity in wage increases between public and private sector employees. Manufacturing and construction are constrained by a lack of demand, while the situation in the service sector has started to improve somewhat. The decline in export volume has slowed, yet it still indicates challenges in the external market. These and other observations will be discussed further in the 2024 review of Latvia's economic heat map.
Source: Central Statistical Bureau, Bank of Latvia, Eurostat, FDC calculations
Average gross wages are on the rise.
In the first quarter of 2024, the average monthly gross salary for employees increased by 11% compared to the same period in the previous year. In the private sector, salaries rose by 8.9%, reaching 1,614 euros. Meanwhile, in the public sector, the increase was significantly higher at 16.3%, with the average salary reaching 1,657 euros. The median gross salary for the first quarter was 1,293 euros, and the median net salary was 957 euros, which indicates that about half of the workers in Latvia earn this amount.
The labor market remains stable despite weak economic growth.
In the first quarter of 2024, the unemployment rate in Latvia was 7.1%, marking a slight increase of 0.1 percentage points from the fourth quarter of 2023. By comparison, the unemployment rate in the European Union was 6.1%, and in the Eurozone it was 6.5%. In Latvia, the employment rate held steady at 64% from the previous quarter. Overall, 879,9 thousand citizens aged 15 to 74 were employed in the labor market during this period.
The number of job vacancies increased by 2.5% compared to the first quarter of 2023, and by 9.1% compared to the fourth quarter of 2023, resulting in a total of 24,500 unfilled positions in the country in the first quarter of 2024. Notably, the number of vacancies in the public sector rose by 7.8%, while the private sector experienced a 1.6% decline in available positions.
Companies are experiencing both optimism and challenges.
In the first quarter of this year, capacity utilization was at 71.4%, a decrease of 0.9 percentage points from the final quarter of 2023. This decline was influenced by a reduction in order volumes in recent months. However, entrepreneurs remain hopeful that the foreign market situation will improve. Since the final quarter of 2023, the proportion of companies mentioning insufficient demand as a limiting factor has increased significantly in both construction and manufacturing sectors, although this issue has decreased in the service sector.
In the first quarter of 2024, 37.7% of construction companies reported a lack of demand, an increase of 8.1 percentage points from the fourth quarter of 2023. In the manufacturing industry, more than half (52%) of the companies surveyed by the Central Statistical Bureau (CSB) indicated that insufficient demand was limiting their economic activity, an increase of 2.9 percentage points from the previous quarter. Conversely, in the service sector, the lack of demand affected 35.7% of companies, showing an improvement of 2.2 percentage points from the fourth quarter of 2023.
The long-term economic sentiment indicator for the first quarter of 2024 was 97.5%, 2.5 percentage points higher than in the previous quarter. This is the best indicator since the second quarter of 2022, indicating that economic uncertainty is gradually easing, and employment expectations are improving.
Lending shows both growth and decline.
According to the Bank of Latvia's data on loan balances, the volume of issued loans in the first quarter of 2024 increased by 3.4% compared to the same period the previous year. This includes a 3.6% increase for households and a 3.2% increase for companies (non-financial corporations). However, data on new loans issued in the first quarter of this year reveal a 5% decrease in loans for housing purchases and a 10% decrease in new loans issued to companies compared to the first quarter of 2023. Conversely, consumer loans issued to households rose by 13%, and other loans to households surged by 31% during the same period.
The trade balance is improving, while the current account deficit remains unchanged.
In the first quarter of 2024, the trade deficit was 4.7% of GDP, an improvement of 3.7 percentage points from the fourth quarter of 2023. Although the volume of Latvian exports continued to decline, it did so at a slower rate, decreasing by 8.4% compared to the first quarter of 2023. The share of exports increased from 47% in the first quarter of 2023 to 48% in the first quarter of 2024, while the share of imports decreased from 53% to 52%.
The current account deficit remained steady at 1.6% of GDP in the first quarter. Within its structure, primary income accounted for a deficit of 2.2% of GDP, while secondary income represented a surplus of 1.8%.
Core inflation is decreasing gradually.
In the first quarter of this year, Latvia's core inflation rate fell to 3.7%, a decrease of 1.5 percentage points from the previous quarter. This rate is slightly higher than the Eurozone's core inflation rate of 3.1%. The reduction in core inflation is a significant outcome of the European Central Bank's monetary policy.
Housing prices continue to rise, but only in the new housing segment.
Overall, house prices are growing slowly, with a 3.7% increase in the first quarter compared to the same period in 2023. The segment of new housing experienced a faster and more stable price increase of 11.1% compared to the first quarter of last year, while prices for used housing rose by only 1.2% during the same period.