Nevertheless, some issues have remained the same – despite high uncertainty and rising production costs the unemployment rate in Latvia hovers slightly above seven per cent (7.3%), a drop compared to the last year's first quarter when it was above eight per cent.
That being said, the pre-pandemic rate was lower; however, given the rapid political changes in the region and suspension of business transactions with Russia, the first quarter's unemployment rate suggests that most businesses are capable of handling the first steps of change.
Although there were companies where the risk of not finding new markets or sources for the purchase of resources persisted, large declines in activity that would affect employment and unemployment were not observed. The pandemic has taught companies to build up resources to safeguard against possible supply chain disruptions, thus ensuring that production was not significantly reduced during the initial adaptation period.
Nevertheless, the biggest challenges in relation to the provision of resources are still ahead. Moreover, resource prices surged already before Russia's invasion of Ukraine and still continue to climb, thus raising production costs and potentially diminishing customers' interest in a more expensive final product, since the production costs of goods sold on the domestic market have even increased by a third year-on-year. Production has become more expensive and difficult; however, at this point it does not translate into a significant unemployment growth.
The beginning of the second quarter suggests that the labour market situation is still favourable to the employed, i.e. there is still high demand for employees and the registered unemployment rate continues to decline. However, in the second half of the year we are more likely to feel the slowdown in economic activity owing to the price and cost increase; furthermore, the unemployment rate could gain some momentum.
More analysis and data from the Latvian central bank is available at the website macroeconomics.lv.