Business confidence in Latvia remains fragile

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Business sentiment in Latvia remains very fragile, according to the latest business tendency survey carried out by the Central Statistical Bureau (CSB) and published June 30.

The business environment in June 2023 was adjudged to be negative in the manufacturing, construction and services sectors, with retail trade the only sector where the confidence indicator is still positive – though even that is reduced.

Business confidence indicators characterize the general situation in the sector and they are acquired by carrying out business surveys in different sectors of the economy. If the indicator is above zero, the business environment is positive, if it is below zero, the business environment is negative.

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Retail

In June 2023 the confidence indicator in retail trade was +4.7, according to seasonally adjusted data, though compared to May, it has reduced by 2.8 percentage points.

In June, 27 % of retailers indicated that they feel no factors restricting their economic activity, and this is 1 percentage point more than in May. 22 % of retailers indicated lack of labour force as a restrictive factor, but 27 % – insufficient demand. Compared to May, the share of retailers having indicated that their economic activity is restricted by competition in trade sector has reduced by 4 percentage points, however, level of this indicator is still very high (46 %). 11 % of retailers indicated that their activity is restricted by various other factors, for example, availability of goods, high prices of energy resources, geopolitical situation, however, since the beginning of the year this indicator tends to decrease.

Services

In the services sector, the seasonally adjusted confidence indicator in June 2023 was -3.2 and the business environment of entrepreneurs has worsened by 1.6 percentage points, compared to May.

In June, 39 % of services sector enterprises do not feel any factors restricting their economic activity. Activity of 16 % of entrepreneurs was significantly restricted by lack of labour force, in turn, insufficient demand as restrictive factor was indicated by 33 %, and their share, compared to the previous month, hasn’t changed significantly. Activity of 12 % of entrepreneurs of services sector is restricted by various other factors (for example, geopolitical situation and prices of energy resources).

Construction

According to seasonally adjusted data, in June confidence indicator in construction was a pessimistic -12.5, which is 1.2 percentage points less as compared to the previous month.

Construction activity in June was mostly affected by lack of labour force and insufficient demand (indicated by 31.3 % and 28.9 % of respondents, respectively). Financial difficulties and lack of materials or equipment as a restrictive factor was indicated by 17.4 % and 5.7 % of construction enterprises, respectively. Restrictive impact of weather conditions was indicated by 5.4 %, but various other factors – by 4.6 % of respondents. 31.1 % of entrepreneurs surveyed indicated that do not feel any factors restricting construction activity.

Manufacturing

According to seasonally adjusted data, the confidence indicator in manufacturing in June comprised -8.4. As compared to May, it has increased by 1.2 percentage points.

In June insufficient demand as a restrictive factor was mentioned by 46.2 % of manufacturing enterprises. Lack of labour force and lack of materials or equipment was indicated by 17.9 % and 13.9 % of respondents, respectively, but financial difficulties were mentioned by 12.0 %. Impact of other factors was indicated by 8.7 % of enterprises (inflation and impact of war in Ukraine is mentioned the most). 26.4 % of manufacturing enterprises have not felt any factor restricting economic activity.

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Predictability of economic activity is improving slowly

When answering the question about the factors restricting their business activity, entrepreneurs also mention the degree of unpredictability and uncertainty of various conditions related to economic activity. The highest predictability indicator in June is in the services sector (-19.1), followed by retail sale and construction (-22.9 and -24.7, respectively), but the lowest predictability of the development of economic activity is in industry (-25.2).

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