Flash comment: Latvia - August 15, 2019 Labour market Q2
Unemployment shrinks in Q2 despite softer economic growth

Despite slower economic growth, the unemployment rate fell to 6.4% in the second quarter. It was by 1.3 percentage points lower compared to the previous year. The number of unemployed declined by 18% largely driven by shrinking working age population.

Developments in the labour market typically lag developments in the economy. However, we can see some signs of softening growth affecting the labour market already now.  

Labour force participation rate seems to have peaked last year. It eased in the second quarter to 69% as the number of economically active shrank faster than the working age population. This was driven by both changes in the age structure of population and the moderation of economic growth.  

The number of employed fell after almost two years of growth. It was down by 0.4% compared to the same period last year, reflecting both easing growth and labour market shortages depending on the sector. 

Another sign that softening economic activity is gradually reflected in the labour market was a decrease in the number of hours worked for the third quarter in a row. 

Nevertheless, the survey data suggests the labour shortages remain elevated and the vacancy rate is still at its historical high.

Outlook 

Softening economic growth should gradually reduce the pressure in the labour market and alleviate labour shortages, leading to slower wage growth. The unemployment rate is likely to bottom out this year and remain low or slightly increase going forward. The number of employed will continue to shrink both due to demographics and weaker demand for labour. Unfavourable demographic trends and negative migration balance will continue denting the working age population, somewhat mitigating the effects of the slower growth on the labour market.

For more information please contact Ms. Agnese Buceniece, +371 67445875, agnese.buceniece@swedbank.lv

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