Business confidence picked up January in Latvia

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In January 2022, business confidence indicators were positive in retail trade and services sector, while in industry and construction, although improving, business confidence indicators were still negative, the Central Statistical Bureau (CSB) said January 31.

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

After a three-month period at the end of 2021 when business confidence indicators in retail trade were negative, in January 2022, the retail trade confidence indicator rebounded to a positive 1.3. Compared to December, this indicator improved by 2.5 percentage points. Compared to the previous month, business confidence indicators improved in retail of non-food products, trade, repair and maintenance of motor vehicles and motor vehicle parts, and fuel retail trade. In January, entrepreneurs in food retail were the most pessimistic, with a confidence score of -12.5, down 4.3 percentage points compared to December.

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In January, 14 % of retailers reported that they did not perceive any constraints on their business activity. This figure is down by two percentage points, compared to December. 11 % of retailers indicate that their business activities are significantly constrained by financial difficulties. In January, this figure reached its highest level in two years. The impact of Covid-19, on the other hand, was noted by 44 % of respondents as a significant factor limiting economic activity, and this indicator has not changed significantly compared to December. In January, respondents also mentioned rising energy prices and various logistical problems as constraints to economic activity, but this share of respondents is still insignificant.

In services sector the most optimistic were insurance providers

Also in the services sector, the seasonally adjusted confidence indicator in January 2022 is positive (4.3) and business environment of entrepreneurs has improved by 5.0 percentage points compared to December. As usual, confidence indicators vary considerably across service sectors and the trends in these indicators also vary depending on the specificities of the sector, the seasonal impact and the extent to which the Covid-19 pandemic affects the sector. In January, the most pessimistic were entrepreneurs in accommodation and catering sector, where the confidence indicators were -41.4 and -56.7 respectively. In accommodation, the indicator increased by 23.6 percentage points compared to December, while in catering sector this indicator deteriorated by 2.4 percentage points. The third particularly pessimistic service sector in January was security and investigation services, where the confidence indicator reached its lowest value at -56.7 over the year. On the other hand, the most optimistic business environment in January was among providers of financial (22.0) and insurance (40.7) services, as well as entrepreneurs in computer programming (20.4) and legal and accounting services (20.0). In the postal and courier sector, which in December had the highest value of the confidence indicator in the services sector, it fell by 19.1 percentage points in January and now stands at 16.7. Overall, the business environment in January was positive in 16 and negative in 12 service sub-sectors. In two sectors, the confidence indicator was zero.

29 % of respondents in the services sector did not experience any factors restricting economic activity in December. This represents an increase of two percentage points compared to November. The share of respondents indicating that the effects of Covid-19 are a significant limiting factor for the success of their business activity has remained stable at 28 % for the third month.

Indicators in construction sector improved significantly

The seasonally adjusted construction confidence rate for January is -5.6, up 7.7 percentage points compared to the previous month. Although still negative, the indicator reached its highest level since June 2019, when the construction confidence indicator stood at -4.4. Compared to December, assessment of entrepreneurs towards the level of construction orders improved slightly in January, and expectations for employment developments over the next three months were also more optimistic. The confidence indicator increased in all construction sectors - in construction of buildings, civil engineering and specialised construction activities.

In January, the construction sector was most affected by bad weather conditions (indicated by 46 % of respondents, two percentage points more than in January last year). Insufficient demand remained the second most frequently mentioned factor limiting business activity (indicated by 31 % of respondents), up by two percentage points compared to the previous month. The share of enterprises whose economic activity was constrained by financial difficulties fell by two percentage points (indicated by 12 % of respondents). The negative impact of Covid-19 was noted by 7 % of enterprises in January, one percentage point less than in December. 18 % of surveyed construction enterprises were not affected by any limiting factors in January (an increase of six percentage points compared to the previous month).

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Business environment of entrepreneurs in manufacturing slightly improved but still negative

The manufacturing confidence indicator improved by 0.7 percentage points in January compared to December and stands at -1.0. This was due to a more positive assessment of the current level of orders by company managers and optimistic forecasts for their company's activity in the next three months (expected increase in production activity, increase in economic activity). The most significant increase of the confidence indicator, compared to the previous month, was registered in such manufacturing industries as manufacture of other motor vehicles, repair and installation of machinery and equipment, manufacture of paper and paper products, manufacture of motor vehicles, trailers and semi-trailers, manufacture of wood and of products of wood and cork, and manufacture of fabricated metal products, except machinery and equipment. In turn, a decrease was registered in other manufacturing, manufacture of electrical equipment, and manufacture of basic pharmaceutical products and pharmaceutical preparations.

Compared to December, the number of respondents indicating insufficient demand as a factor limiting production has slightly decreased, while the impact of labour shortages has increased (both factors were indicated by 28 % of entrepreneurs surveyed). The impact of Covid- 19 was indicated by 10 % of surveyed enterprises in January (unchanged from the previous month). Other factors limiting production include rising prices of electricity and raw materials. 30 % of the surveyed manufacturing enterprises were not affected by any limiting factors in January.

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