Like other EU member state's independent fiscal institutions, the Council quarterly prepares the Latvian economy heatmap. Observations from 2000 1st quarter till 2022 1st quarter available in MS Excel format here.
The first quarter of 2022 demonstrated the economy's ability to recover from a pandemic crisis and start a new growth cycle. The data for the first quarter do not yet reflect the historical events that followed the Russian invasion of Ukraine, but still show the lost opportunities after these events. The composite heat map index in the first quarter was 0.6, which is similar to the result of the third quarter of 2019. Below are the sections that make up this overall score.
The average wage increased by 6.9% in the first quarter and reached 1,297 euros. Compared to the rather rapid growth of wages in the previous quarters, the growth of wages has slowed down considerably and compared to the last quarter of the previous year, it can be seen that the average monthly wage decreased by 2.9%.
The unemployment rate in the first quarter was observed at 7.1%, according to Eurostat data. At the same time, however, the employment rate is 63.2% which is below the pre-pandemic level of around 65%.
The number of vacancies has increased by 30% compared to the first quarter of 2021, while compared to the previous quarter number of vacancies has increased by 5%. In total, 28.2 thousand vacancies were available in the first quarter. There is a larger supply of vacancies in the private sector (17.8 thousand), while 10.4 thousand vacancies are available in the public sector, and the number of vacancies in the public sector is growing significantly faster than in the private sector, +41.4% versus +24.6%.
Capacity utilization is 75.5%, which is close to pre-pandemic levels.
The lack of demand, as a factor limiting economic activity, became less pronounced in the industrial sector, in the first quarter 28% of the entrepreneurs of the sector surveyed by CSB pointed to it. The situation in the services sector also continued to improve, with even 28% of service providers reporting a lack of demand. In both cases, the situation approached that of a pandemic. At the same time, 30% of surveyed entrepreneurs pointed to a lack of demand in construction, and the impact of this restriction has improved little since 2020.
The economic sentiment indicator was 98.6% in the first quarter, down from 100.4% in the fourth quarter, mainly due to soaring production costs and consumer prices. In general, both consumers and businesses are worried about the general economic situation in the coming months.
Lending activity. Compared to the first quarter of 2021, the amount of issued loans has increased by 2.6%. ‘Loans to households increased by 8.4% compared to the first quarter of the previous year, including 8.3% for loans for house purchases and 23% for consumer loans.
The trade balance deteriorated in the first quarter, reaching -11.1% of GDP. The situation is partly explained by the restructuring of foreign trade in connection with the war in Ukraine. In the first quarter of 2021, the share of exports to Russia, Belarus and Ukraine as a whole was 10%, but already in the first quarter of this year, it dropped to 7%. Exports of euro goods fell by 7% in the first quarter, while imports from Russia, Belarus and Ukraine increased by 77% in the first quarter (especially from Russia by 113%). The current account balance also deteriorated in the first quarter to -7.4%, following a surplus of 2.4% recorded in the last quarter of 2021.
The core inflation rate has risen to 4.7% in the first quarter, indicating that rising energy and food prices have begun to have a significant impact on the structure of the economy. Consumer prices rose by 9.2% in the first quarter. Given that energy prices may remain high for a long time to come, given the geopolitical risks, this should be assumed to be one of the main drivers of economic overheating.
Housing price index in the times of increasing inflation and at a time when citizens' savings are rapidly losing value, the demand for real estate has grown significantly, accepting it as a safe investment object. In the first quarter, the housing price index continued to increase and reached 17.3%. which is the highest indicator since the II quarter of 2010.
The heatmap
Source: Central Statistical Bureau, Bank of Latvia, Eurostat, FDC calculations