Like other EU member state's independent fiscal institutions, the Council quarterly prepares the Latvian economy heatmap. Observations from 2000 1st quarter till 2022 2nd quarter available in MS Excel format here.
In the second quarter of 2022, positive dynamics continued in the economy, due to the inertia that remained despite the war in Ukraine that started in February. The composite heatmap index for this quarter was 0.8, which is higher than the first quarter and comparable to pre-pandemic figures.
The sections that make up this overall result are explained in more detail below.
The average monthly wage of employees increased by 8.3% and reached 1,362 euros. Compared to the relatively rapid growth of wages in the previous year's quarters, the growth of wages has become slower, despite the ever-increasing consumer prices.
The unemployment rate fell to 6.5% in the second quarter, according to Eurostat data. On the other hand, the employment rate in this quarter reached (64%) and continued to get closer to the pre-pandemic level. The increase in the number of vacancies slowed down sharply and was only 2% compared to the second quarter of 2021. Compared to the previous quarter, the number of vacancies decreased by 7% or 1,935 jobs. The number of vacancies, compared to the second quarter of 2021, decreased the most in manufacturing (-23%), trade (-21%), health and social care (-9%) and construction (-8%). On the other hand, the number of vacancies increased in the electricity, gas and heat supply sector (+80%), in education (+71%) and in public administration (+36%). The number of vacancies in the public sector increased by 23%, while in the private sector it decreased by 8%.
Capacity utilization has been quite stable and high since the second quarter of 2021 - an average of 76%, exactly in the second quarter of this year it was at the level of 76.4%.
The lack of demand, as a factor limiting economic activity, became less pronounced in all sectors: in the industrial sector, in the second quarter, 25% of the entrepreneurs of the sector surveyed by CSB pointed to it. Since the first quarter, the situation in the service sector continued to improve, 24% of surveyed service providers pointed to the lack of demand. On the other hand, in construction, 27% of entrepreneurs surveyed by CSB pointed to a lack of demand, and the influence of this factor in the sector has decreased, reaching the level by the end of 2019. However, the industry is affected by other negative factors, among them the high prices of construction materials.
The economic sentiment indicator averaged 93.2%. Compared to the first quarter figure (98.5%), it deteriorated mainly due to strongly negative consumer sentiment. Consumer economic sentiment was on average (-30%) which is significantly below the long-term average (-7.6%). Consumers negatively evaluated their material situation during the last year (-16%), while expectations for the next year are even more pessimistic (-22%). In the consumers' assessment, the overall economic situation during the next year reaches the historically lowest level (-64% in June), for comparison, the long-term average is (-8.7%).
Lending activity. Compared to the second quarter of 2021, the volume of issued loans increased by 5% on average. Compared to the second quarter of the previous year, the amount of loans granted to households increased by 9%, including consumer loans by 25% and loans for a home purchase by 9%, while other loans to households decreased by 6%. Lending to legal entities: the amount of loans granted to non-financial companies decreased by 0.5%, while the amount of loans granted to other financial institutions was 11% higher than in the second quarter of 2021.
The trade balance worsened in the second quarter and its deficit reached (-16.3%) of GDP, the current account balance also worsened to (-9.4%). In the structure of the current account balance, primary income made up the deficit by (-2.4%) of GDP, while in secondary income was a surplus by 0.5% of GDP.
The core inflation rate continued to rise, reaching 6.9% in the second quarter. This shows that the rise in energy and food prices significantly affects the entire structure of the economy. Considering that the prices of energy resources can remain high for a long time because geopolitical risks do not decrease, it must be assumed that inflation will be one of the main factors of economic imbalance for a longer time.
House price index. In the conditions of increasing inflation and at a time when household savings are rapidly losing value, the demand for real estate keeps prices at a high level, however, a significant price increase has not occurred since the third quarter of 2021. In the second quarter, compared to the level of 17.4% observed in the first quarter, the house price index decreased slightly to 16.5%. However, such indicators are high and indicate signs of overheating in the market, previously such an index was fixed only 14 years ago.
The heatmap
Source: Central Statistical Bureau, Bank of Latvia, Eurostat, FDC calculations