Flash comment: Latvia - November 27, 2015
Annual gross wage growth accelerated to 7.3% in 3Q
  • Average gross wage grew by 7.3% in 3Q 2015 (up from 6.4% in 2Q)
  • Average real net wage was up by 8.3% in 3Q 2015
  • Wage growth to remain strong this and next two years

According to the data by Central Statistical Bureau (CSB), gross average wage growth in the third quarter of 2015 was 7.3% in annual terms, up from 6.4% in the first quarter (which was also revised upwards). Annual growth of wages was positive in all sectors of the economy for the second consecutive quarter. Similarly as in first half of the year, wages grew faster than the overall average in the sectors of food and catering (10.6%), operations with real estate (10.5%), art and entertainment (9.3%) as well as domestic trade (9%) and manufacturing (8.8%).

The growth of purchasing power was even swifter. The average net wage grew by 8.2% annually, while consumer prices were largely flat compared to a year ago (CPI annual inflation at -0.1% in the third quarter). Thus, the real net wages were by 8.3% higher than a year ago. Yet private consumption still seems to grow less than incomes. Retail trade grew by 4.7% in annual terms in the second quarter (4.4% excluding fuel). Households seem to continue saving – bank deposits in September were by 7% larger than a year ago.

The swift wage growth is supported by a mix of factors. First, the unemployment rate in 3Q inched down to 9.7% (from 9.8% in 2Q), and now is close to the structural level, i.e., employers are often facing hardships with finding qualified employees matching the necessary skills, even if the number of unemployed is rather high. Second, wage growth is also supported by diminishing labour supply (population aged 15-74). Thirdly, it is also facilitated by emigration risks due to wage level gaps with advanced EU countries - gross income per employee is, for instance, at about one-fourth of Sweden’s or one-third of Germany’s. Besides this, minimum wage increase at the beginning of the year also contributes to the average wage growth.

We expect the wage growth to remain strong also in the next two years because it will become harder for employers to find employees with necessary skills and qualification. We forecast the average gross wage growth at 6.5% this year, and 5.5% and 6% in the next two years, respectively. The minimum wage will be raised again next year, yet the increase will be much more moderate (2.8%, compared to 12.5% increase this year), thus its contribution to the average wage growth will not be substantial. Wage growth continues to outpace productivity growth, thus putting competitiveness under pressure – this is already seen in the stagnating export market shares in the EU.

For more information please contact Mr. Andrejs Semjonovs, +371 67445844, andrejs.semjonovs@swedbank.lv
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