Analytics, Banks, Financial Services, Labour-market, Latvia

The bank’s representative indicated that notwithstanding the strong growth of the Latvian economy, entrepreneurs still remain cautiously optimistic, while their estimates of labor availability have been worsening each quarter.

The survey shows that business sentiment in Latvia remains cautiously optimistic, at 51.3 index points. Among sectors of the Latvian economy, the highest optimism has been recorded in construction (53.8 points) and production (53.6 %), while the mood in the services sector, in which the value of the index has dropped from 51.2 to 50.2 points, has worsened the overall business sentiment. Transportation and warehousing services providers are the most pessimistic as these segments are suffering from severe labor shortages. A bit more cheerful mood has been recorded in the trade sector where the index stands at 51 points.

Meanwhile, the surveyed entrepreneurs’ evaluation of the current situation has become positive again, with the index rising from 48.5 points last quarter to 50 points. Although the future index has dropped from 54.4 points t o 52.6 points, it still can be regarded as cautiously optimistic.

The Citadele spokeswoman noted that the entrepreneurs’ estimate of labor availability and tax rates had become increasingly negative in recent quarters.

Most respondents in the survey, or 69 %, described labor availability as poor or very poor, sending the index to -35, or the lowest point since the beginning of 2016. Also, 81 % of entrepreneurs find tax rates to be bad (-47). In the second half of 2017, the tax index had risen to -38.

“Against the backdrop of generally positive economic growth, business optimism is dampened by labor shortages and wage growth in combination with labor taxes, which are the highest in the Baltic states. Staff shortages are becoming more and more pressing each quarter. Nearly half entrepreneurs are saying now that they have had difficulties ensuring the necessary workforce in during the past year. The tax reforms that were announced last year, improved the entrepreneurs’ evaluation of tax rates. Sadly, their mood deteriorated later. Although the economy has been growing swiftly on the whole, the entrepreneurs remain cautious amid the government’s lack of a vision on how to deal with the labor shortages or labor tax issues in the future,” said Citadele economist Martins Abolins.

The Citadele Index also shows that the mood of exporting businesses has rebounded after a slump at the beginning of this year and has risen to 53.7 points. However, the sentiment of businesses working on the local market has declined from 51 to 50.4 points.

The latest Citadele Index survey was conducted in the summer of 2018 in collaboration with SKDS market and public opinion research center SKDS, interviewing 750 executives of Latvia-based companies.