Labor shortage puts brakes on Latvian employers’ optimism

Despite swift economic growth, the mood of Latvian business owners is still cautiously optimistic, and their opinion on the availability of employees has worsened from one quarter to the next, shows the most recent Citadele Index survey by Citadele Bank and SKDS.

The mood of Latvian business owners is still cautiously optimistic, reaching 51.3 index points, according to the latest Citadele Index survey. Among different industries, the most optimism can be found in construction (53.8 points) and manufacturing (53.6 points). Meanwhile, the general mood of business owners worsened in the service industry, where the index value has reduced from 51.2 to 50.2 points. Among the service sub-industries, the most negative is currently the transport and storage sector, which also has a significant lack of workforce. Slightly more optimistic are business owners working in trade, where the mood index is 51 points.

After a break of one quarter, the current situation is seen as positive again by business owners - the present index has grown from 48.5 to 50 points. Although the future index has reduced from 54.4 to 52.6 points, the future rating can also be described as cautiously optimistic.

The index survey shows that, each quarter, the availability of employees and tax rates are rated more negatively by business owners.

A majority, 69%, of business owners rated workforce availability as bad or very bad. Therefore, the index has reduced to -35, which is the lowest since the start of 2016. Meanwhile, the tax level situation was rated as bad or very bad by 81% of those surveyed, with the index reducing to -47. In the second half of last year, the tax level index had increased to -38.

Citadele Bank economist Mārtiņš Āboliņš said: “Against a background of positive economic growth, employers’ optimism is being tempered by a lack of workforce and rising wages alongside employee taxes, which are the highest in the Baltics. The workforce deficit becomes more pronounced every quarter.

"At the moment, almost half, or every other, employer says that, in the past year, they have had difficulties in finding enough employees. When tax reform was announced at the start of last year, business owners’ opinion on tax levels improved. Unfortunately, the employers’ mood has decreased again. Although, in general, the economy is growing swiftly, business owners are cautious, because there is currently no clear vision for the future on how to solve the lack of workforce or employee taxes on a nationwide level.”

Exporting business owners’ mood has improved; for those that operate locally– a decrease

The mood of exporting business owners has recovered since its fall at the start of the year, and is at 53.7 index points. However, the mood of those who operate in the local market has worsened slightly, with the index moving from 51 to 50.4.

By number of employees, heads of large businesses, as usual, feel much better than small business owners. Businesses with over 250 employees have a mood index of 59.2 points, while the mood of micro-business owners, with fewer than 10 employees, tends to be more pessimistic, with an index of 49.4 points. The mood of medium-sized (50-249 employees) businesses has significantly improved, reaching 57.8 points, which is the highest figure in six years. Small business owners with between 10 and 49 employees have a mood index of 52.7 points.

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