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International Internet Magazine. Baltic States news & analytics Saturday, 11.07.2020, 20:31

In May, business environment in Latvia was negative in services sector and construction, positive – in retail and industry

Ieva Vanaga/Madara Liepiņa, Statistics Latvia, Riga, 29.05.2020.Print version
Data of business tendency surveys[1] carried out by the Central Statistical Bureau (CSB) show that, in May 2020, as compared to April, business confidence indicators continued to reduce in construction and services sector, but slightly improved – in retail trade and industry.

Business confidence indicators characterize general situation in the sector and they are acquired by carrying out business surveys in industry, construction, retail trade and services sector. If the indicator is above zero, business environment is positive, if it is below zero – business environment is negative.

According to seasonally adjusted data, in May confidence indicator in retail sale was –22.5, which is an increase of 3.9 percentage points as compared to April. The largest growth was in retail sale of food, beverages and tobacco (by 13.3 percentage points), but in trade of motor vehicles, motorcycles and their parts and accessories confidence indicator continued to reduce (by 1.3 percentage points).

Impact of restrictions imposed by emergency situation due to COVID-19 was mentioned by retail sellers as a most important restrictive factor, and was indicated by 54% of all respondents. The same as a year ago, the only factor limiting economic activity in retail trade is “insufficient demand”, and it was mentioned as significant by 30.5% of respondents. In April, competitiveness in own market sector (29.5%) had significantly lost its importance. In May, as situation of business in retail trade improved slightly, this factor starts to regain its significance (34.6%).

In May 2020 confidence in services sector continued to reduce and reached -37.4, and that is 3.7 percentage points less than in April. Confidence indicators in May were negative in all services sectors, but the lowest they still were in accommodation, catering and travel agency and tour operator sectors. In air transport, which in April was among most pessimistic services sectors, in May confidence has risen by 20.8 percentage points. Comparatively optimistic assessment was provided by company managers and leading specialists in veterinary, legal and accounting, as well as postal and courier services sectors.

In May 2020, as compared to April, assessment of factors restricting economic activity in services sector has not changed significantly. More than a year ago enterprises felt insufficient demand (31%); financial difficulties (9%) are almost as restrictive as they were last year. Emergency situation was indicated as significant obstruction for successful economic activity by 51% of respondents surveyed in services sector, but lack of labour force (2%) has lost its importance on its background.

In May confidence indicator in construction (according to seasonally adjusted data), as compared to the previous month, showed a drop of 0.6 percentage points, reducing to -33.1, which was affected by more negative assessment of entrepreneurs on the level of construction orders (only assessment of civil engineering enterprises improved), but more positive was assessment of entrepreneurs regarding the expected employment for the next three months. Confidence indicator continued to reduce in construction of buildings (by 4.8 percentage points), but it increased in civil engineering and specialized construction activities.

Out of all factors affecting construction output most often “insufficient demand” was mentioned by managers of construction enterprises (38% of construction enterprises surveyed). But impact of COVID-19 and emergency situation in the country in May was mentioned by 23% of all respondents. As compared to April of this year and May of last year, the number of enterprises mentioning financial difficulties as restrictive factor has increased by 6% (18% of all respondents).

In May confidence indicator in manufacturing was –14.4 (4.4 percentage points more than in April this year), which was affected by significantly more optimistic forecasts of enterprise managers regarding activity of their enterprise in the next three months (the expected production activity, total economic activity) and slightly more positive assessment of current level of orders. The largest growth of confidence indicator, as compared to the previous month, was in manufacture of motor vehicles, trailers and semi-trailers (by 25.5 percentage points), significant rise of confidence was also in manufacture of wood and of products of wood, manufacture of paper and paper products, manufacture of chemicals and chemical products, manufacture of furniture, manufacture of electrical equipment, repair and installation of machinery and equipment. While confidence indicator reduced significantly in manufacture of basic pharmaceutical products and pharmaceutical preparations, manufacture of beverages, manufacture of computer, electronic and optical products. As compared to April this year, mood of entrepreneurs worsened regarding expected sale price of goods, but assessment of the expected development of employment in the following months improved.

As compared to the previous month, assessment of enterprises on the total volume of all orders during the last three months and the expected volume of export orders for the next three months has increased (by 5.9 and 5.7 percentage points, respectively), of which assessment of export orders has increased significantly to member states both of the European Union (EU) and of the Commonwealth of Independent States (CIS). But, as compared to April of this year, competitiveness assessment of manufacturing enterprises during the last three months continued to worsen both in external and domestic markets. The largest fall of competitiveness assessment was in the EU market (by 3.7 percentage points). As compared to the previous period, the number of enterprises indicating “insufficient demand” (44% of all enterprises) out of all factors affecting production in enterprise has slightly increased, but the number of enterprises indicating impact of COVID-19 has reduced (20% of manufacturing enterprises surveyed).

In May 2020 economic sentiment indicator comprised 78.9[3], which is 1.2 points more than in April. Economic sentiment indicator characterizes general socio-economic situation in the country during a certain period of time (month), and it is calculated by the European Commission, Directorate-General for Economic and Financial Affairs for all EU countries according to a common methodology, taking 15 various seasonally adjusted components included in industry, construction, retail trade and services sector, as well as in consumer confidence indicator, as a basis.

Next press release on confidence indicators in May is planned to be released on June 30. More information on confidence indicators is available in the CSB database section “Business indicators”. 

[1] Business surveys in industry, construction, retail trade and services sector are carried out by the CSB monthly, accordingly methodology of the Joint Harmonised EU Programme of Business and Consumer Surveys co-financed by the European Commission.

[2] Net (balance) is calculated as difference between positive and negative answers of entrepreneurs surveyed, which are expressed in per cent.

[3] Value of the indicator exceeding 100 means that numeric characteristic of the economic situation exceeds long-term average value (2000  2019). While value of the indicator smaller than 100 means that characteristic of economic situation is below long-term average value.

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