The latest data from the Central Statistical Bureau of Latvia (CSP) indicate the actual unemployment level was 6.9% in Q3 2022. Swedbank Latvia acting chief economist Agnese Buceniece provides her assessment of this figure.
This is an improvement of 7.2% when compared with the year prior, although back then the economy was under lockdown caused by the pandemic. However, unemployment has increased in recent months – in Q3 it was 0.3 percentage points higher when compared with Q2. The number of unemployed persons in the country has increased by 3.6 thousand. Does this mean the downturn in economic activity has already started affecting the labour market?
Without seasonal jobs in summer/early autumn, the unemployment rise would have been even more serious.
The growth of unemployment in Q3 was something of a surprise, considering the data from the National Employment Agency on registered unemployment indicated a drop. Data indicates the number of unemployed people not registered with NVA has increased. This is likely because they are not eligible for unemployment benefits. It is possible these job seekers may have worked in the grey economy sector, are only starting on their path or are returning to the labour market after a break. This is confirmed in data from CSP on the rise in unemployment among youngsters. It is also possible many Ukrainian citizens are looking for jobs without registering with NVA. This is why there aren’t any real signals of employers laying off employees more often.
Employment data does indicate some positive developments on the labour market in Q3. The number of employed people has increased by more than 22 thousand when compared with 2021 and by more than 14 thousand when compared with Q2. Improvements came from recovery from restrictions imposed during the pandemic and thanks to seasonal jobs.
The reducing influence of growing prices of goods and services, as well as the pandemic, have motivated many residents to return to the labour market. The index of economic activity has come close to its pre-pandemic level and indicates that 69.4% of residents aged 15 to 74 years were employed or were actively looking for work. Despite the unfavourable demographic tendency, the percentage and number of economically active residents is up. This index is affected by the influx of Ukrainian citizens to Latvia. Data from CSP indicates that approximately 25 thousand Ukrainians, mostly women, have arrived in Latvia since the start of the war. As a result of this, the number of residents aged 15 to 74 years has increased by approximately 13 thousand when compared with 2021 and by 9 thousand when compared with Q2.
Although the labour market received more working hands and a drop in the economy is already registered, the availability of labour force has not improved significantly. It should be said here, however, that there are certain differences observed among sectors.
The shortage of labour force is down in retail trade and processing industry. However, it remains the highest in the construction sector.
The next couple of quarters may have a slight improvement on labour force availability. Unfortunately, this means continued growth of unemployment and decline of employment. Survey results indicate that employers are becoming more cautious and the percentage of companies that have plans to lay off employees is up. This index is not as pessimistic as it was in 2020 or start of 2021.
It is expected for the unemployment level to increase even more closer to the end of the year and the start of next year. This is both because of a drop in seasonal job availability and a drop in economic activity. Data from NVA indicates that unemployment started going up slightly at the end of October and start of November. Currently it is likely the increase in unemployment is caused by seasonal factors. High costs and the drop in demand has forced many companies reduce operations and likely organise layoffs. Companies will try to avoid laying off workers if at all possible, especially if they spot short-term challenges ahead while also considering possible labour force shortage in the future.
We do predict a short and shallow recession for Latvia’s economy. This is when the situation in the labour market may deteriorate further.
Unemployment is expected to increase to an average of 7.5% next year. It may be higher at the start of the year, but with a slow and gradual economic recovery labour market indexes will improve in the second half of the year.
Also read: Employment in Latvia at 64.6% in Q3, unemployment at 6.9%