In January business environment worsened significantly in retail trade and services sector
Data of business tendency surveys1 carried out by the Central Statistical Bureau (CSB) show that in January 2021 business confidence indicators increased slightly in construction, dropped slightly in industry, but in retail trade and services sector there was a significant drop.
Jānis Vitenbergs, the minister of Economics: “Current epidemiological situation of Latvia yet shows no positive trend, which would allow government to lift all measures restricting the virus. Enterprises of many sectors still cannot work properly; accommodation and catering, as well as arts, recreation, entertainment and trade sectors still are affected the most. Until now, the negative impact of Covid-19 was mitigated by state support measures introduced, which allowed entrepreneurs to keep their economic activity, and workplaces and income of population. Such a vast and diversified support has never been provided to entrepreneurs in Latvia, which includes support to maintenance of economic activity and to retention, development and training of employees, innovations and stimulation of exports.
At the moment it is important to continue ensuring all the necessary security and supportive measures to entrepreneurs for retention of business having suffered due to pandemic of Covid-19 so that, as soon as restrictions determined in the country are lifted, it could resume its activity fast. Enterprises suffer losses because of restrictive measures implemented in the country, not because of unsuccessful business, therefore, the country must support entrepreneurs as much as possible and it needs to introduce new supportive mechanisms. Business needs to be “mothbolled” until “better times”, not to be leaded to bankruptcy or sale to foreign investors because of restrictions imposed due to pandemic, of which support also needs to be provided to those enterprises, which continue their activity partially.”
Business confidence indicators characterize general situation in the sector and they are acquired by carrying out business surveys in industry, construction, retail trade and services sector. If the indicator is above zero, business environment is positive, if it is below zero – business environment is negative.
Confidence indicator in retail trade has got closer to the lowest level of 2008.
According to seasonally adjusted data, in January confidence indicator in retail trade comprised -15.8. As compared to December, this indicator has dropped by 4.1 percentage point. Already for the third month confidence indicators are negative both in all sub-sectors of retail trade, and in trade and repair of motor vehicles and motorcycles, their parts and accessories. The lowest indicator (-32.9) is in retail sale of non-food products. It exceeded the lowest value of 2019, which was reached in April (-30.4), and got closer to the lowest value (-36.3) of economic crisis in 2008-2009.
In January the number of retail trade enterprises indicating that their economic activity is restricted by impact of COVID-19 continued to increase. This factor was marked by 55.3 % of respondents. Also competition in trade sector (28.5 %) and insufficient demand (28.2 %) significantly restricts successful activity of retail trade enterprises. In January share of enterprises in retail trade feeling no factors restricting economic activity continued to reduce. Their share comprised 14.0 %.
Business environment is negative in almost all services sectors.
In services sector in January 2021, according to seasonally adjusted data, confidence comprised -27.1. As compared to December, this indicator has dropped by 7.1 percentage point. Especially low confidence indicators still are in catering (-77.2 %), accommodation (-74.2 %), as well as in travel agency and tour operator sector (-50.9 %), however, compared to December, the indicator has improved in all three sectors. In January positive confidence values are in insurance sector (9.0 %) and scientific research activities (5.4 %). On the background of other services sectors especially optimistic are providers of postal and courier activities (41.2 %).
In January, 23 % of respondents of services sector have not felt any factor restricting economic activity, but 39 % of respondents indicated that consequences from COVID-19 is a significant factor restricting successful economic activity. Also insufficient demand was significant restrictive factor in services sector, which was indicated by 35 % of entrepreneurs surveyed. Share of entrepreneurs restricted by financial difficulties (15 %) has also increased.
Confidence indicator in construction sector rose by 1.3 percentage points
In January 2021 confidence indicator in construction was -21.2, which, compared to the previous month, has risen by 1.3 percentage points. In January, compared to December, there was slight improvement in assessment of entrepreneurs regarding the level of construction orders and assessment regarding the expected employment in the next three months. Confidence indicator increased in all construction sectors – construction of buildings, civil engineering and specialized construction activities.
Compared to December, the number of respondents indicating financial difficulties (11 % of construction enterprises surveyed) out of all factors affecting economic activity of construction enterprises in January has slightly decreased. In turn, the number of enterprises indicating impact of weather (44 % of respondents), insufficient demand (38 % of construction enterprises), lack of labour force (11 % of construction enterprises) and lack of materials or equipment (4 % of respondents) has increased. In January 12 % of respondents indicated impact of COVID-19. More than a year ago construction enterprises felt insufficient demand and impact of weather (of 8 and 4 percentage points, respectively), but less – lack of labour force (of 7 percentage points). In January, economic activity of 17 % of construction enterprises was not affected by any restrictive factor.
In manufacturing sector confidence indicator drops by 0.5 percentage points
In January this year confidence indicator in manufacturing comprised -6.7 (0.5 percentage point less than in December), which was affected by even more negative forecasts of company managers regarding level of production orders. The largest drop of confidence indicator, as compared to December, was in such manufacturing sectors as manufacture of basic pharmaceutical products and pharmaceutical preparations, manufacture of other transport equipment, printing and reproduction of recorded media, but the largest rise was in manufacture of motor vehicles, trailers and semi-trailers, manufacture of machinery and equipment n.e.c., manufacture of paper and paper products, manufacture of textiles and manufacture of beverages. As compared to the previous month, forecasts of entrepreneurs regarding their own enterprise's activity for the next three months (expected rise in the production activity, rise in assessment of economic activity) were more positive, as well as business environment regarding expected sale price of goods and development of employment in the following three months has improved.
As compared to January 2020, assessment of entrepreneurs regarding the expected volume of export orders for the next three months (of which, assessment of export orders has decreased to member states both of the European Union (EU) and the Commonwealth of Independent States (CIS)) has reduced by 10.1 percentage point. Also competitiveness assessment of manufacturing during the last three months has reduced both in domestic and external markets. In turn, total volume of orders of enterprises during the last three months has increased slightly.
As compared to December, growth was observed in the number of enterprises indicating insufficient demand (37 % of respondents) and financial difficulties (12 % of enterprises surveyed) out of all factors affecting production in enterprise. In January 17 % of respondents indicated impact of COVID-19. More than a year ago enterprises experienced financial difficulties, lack of materials or equipment (by 3 percentage points each), but less – lack of labour force (by 7 percentage points). In January, economic activity of 30 % of enterprises of industry sector was not affected by any restrictive factor.
In January 2021 economic sentiment indicator comprised 87.23, which is 1.8 points less than in December. Economic sentiment indicator characterizes general socio-economic situation in the country during a certain period of time (month), and it is calculated by the European Commission, Directorate-General for Economic and Financial Affairs for all EU countries according to a common methodology, taking 15 various seasonally adjusted components included in industry, construction, retail trade and services sector, as well as in consumer confidence indicator, as a basis.
Data are available in the section of official statistics portal Business tendency.
1Business surveys in industry, construction, retail trade and services sector are carried out by the CSB monthly, accordingly methodology of the Joint Harmonised EU Programme of Business and Consumer Surveys co-financed by the European Commission.
2Net (balance) is calculated as difference between positive and negative answers of entrepreneurs surveyed, which are expressed in per cent.
3Value of the indicator exceeding 100 means that numeric characteristic of the economic situation exceeds long-term average value(2000 – 2019). While value of the indicator smaller than 100 means that characteristic of economic situation is below long-term average value.