The unemployment level may reach 7-8% in Latvia next year, according to analysts of various banks. Swedbank’s acting senior economist Agnese Buceniece says that because a short-term and shallow recession is expected in the country, there may be a slight increase of unemployment levels in the coming months.
«Both due to seasonal factors and the drop in economic activity, unemployment has started going up. It may reach its peak at the start of next year. Unemployment may come close to 8%. It will go down to approximately 7% over the course of the year,» said Buceniece. She also said the situation may differ between different sectors.
For example, in the transit sector, which was negatively impacted by the decision to cut economic ties with Russia, companies may be forced to significantly cut employee numbers.
In the IT sector, however, rules will continue to be dictated by the shortage of employees. «Considering the negative demographic trends and only slight economic recovery, employers will likely try to avoid laying off specialists, knowing that it may be difficult to find new ones later,» added Buceniece.
Citadele Bank economist Mārtiņš Āboliņš said Latvia can expect a recession and a slight increase in unemployment. «Already we can see a drop in vacancies and job offers. I do not expect a rapid surge of unemployment,» he said, adding that unemployment in Latvia may increase to 7.2% next year. Āboliņš said unemployment increased during the Covid-19 pandemic because the restrictions imposed during it had a very strong impact on certain sectors.
«Economic slowdown will be wide and because of the number of working people we can expect a structural shortage of workers in the medium-term perspective. This is why employers are not in a hurry to hire on new employees. The slowdown in Sweden’s housing and construction sector can cause a return of construction workers to Latvia,» said Citadele Bank’s economist.
SEB Bank’s macroeconomic expert Dainis Gašpuitis said that
the drop of economic activity in Q3 was reflected in a slight increase of unemployment, it reaching 6.9%.
He also said that the labour market is gradually cooling down. This means unemployment will continue increasing. «Trends may become stronger at the beginning of the year. After that they may stabilise. However, considering the year is expected to be very tense, businesses will be cautious when taking on new employees. This is why the possible improvements in the second half of the year may come as a result of uncertainty and high costs,» he said.
He mentioned that surveys across sectors indicate that demand for employees remains despite the slight downward pointing trend. The level of vacancies is going down, but it remains high. So far the effect from Russian sanctions has yet to manifest itself on a large scale. There are businesses have experience challenges with the Russian market and have started optimising their labour force. New trends may manifest themselves next year, when more sanctions come into force.
The goods news is that the labour market has yet to show any signs of strongly negative scenarios.
«The biggest changes may manifest during an energy crisis, which will likely prove short-term and too small to affect long-term trends in the labour market. There is a tangible shortage of workers in all of Europe, and it becomes more and more so with each passing year. Employees are a value. Employers should think twice before letting them go. This is why such steps are made in emergency situations. The cooling of the labour market will help reduce the pressure on the need to increase wages. Nevertheless, some pressure will remain,» said Gašpuitis, predicting that the proportion of job seekers may reach 7.3% by the end of 2023.
Luminor Bank economist Pēteris Strautiņš believes the proportion of job seekers could be at 8% next year, which is a pessimistic outlook. He said job losses in Latvia may be geographically concentrated due to crises in different sectors. Those who may lose their jobs in the forestry or transit sector in 2023 will have difficulties with quickly finding new jobs.
«The number of unemployed people in Latvia may reach around 8% by the end of the year. It is expected for the unemployment in Riga and its surrounding areas to remain very low, as this region’s export sectors have suffered the least from the global recession. The capital city region will also benefit from public sector investments – Rail Baltica, the airport and other projects,» said Strautiņš.
Also read: Outlook: average inflation in Latvia in 2023 may stay at 9%