Many purchases are currently on hold and the relatively wealthiest part of society is accumulating money in bank accounts. This is also reflected in retail statistics. In October of this year, compared to the corresponding month of the previous year, the sector experienced an increase of 6.4%, while the restrictions set in November led to a decrease in the growth rate to 1.4%.
Among the factors that could contribute to the rapid growth of consumption are various unrealized purchases. At the same time, however, job losses, income foregone and the threat of insolvency must be taken into account.
However, in general, Latvians “will have more money to spend. Despite the rather sparse state support, the financial wealth of Latvian society has increased during the Covid-19 crisis. The impact of the crisis on exports was smaller than in a typical European country. Moreover, the crisis affects business owners rather than This is important because the latter spend more of the money they receive. The news of the crisis will certainly improve household sentiment and encourage them to spend money, “commented on the situation. Luminor economist Pēteris Strautiņš. It can also be said that the economy is currently “latent asleep”, but there are financial resources that can be used to strengthen consumption when the restrictions related to the pandemic are lifted.
SEB banka economist Dainis Gašpuitis expresses the opinion that currently the main problems are not related to demand, but to supply restrictions or even the absence of supply. Therefore, how quickly Covid-19 will be brought under control and how soon the restrictions will be lifted will determine the pace and extent of the recovery in consumption, explains the economic expert. “In the short term, this could be explosive, as detained consumption will materialize, which will not be significantly affected by rising unemployment.
He points out that the difficulties could be caused by debts, as well as a lack of working capital and staff. These problems may go unnoticed only when looking at macroeconomic data, but on an in-depth assessment they will not go away, and they are likely to remain for a long time to come.
Gašpuitis points out that state-coordinated support measures will play a role in solving these problems, but they will not be able to protect all companies. Also, according to the economic specialist, the shadow economy will play its role, as many service sectors are quite widely represented there, and part of the growth may be lost. “Looking at certain sectors related to local consumption, I think that trade will be in a more stable growth position. The entertainment and leisure sector will grow, but there will still be restrictions there, slowing down the growth, and the same in tourism and transport,” Gašpuitis estimates. The expert also raises the issue of vaccination. In his view, there is a possibility that access to certain services or businesses will be linked to the ability to prove that vaccination has been carried out. “Let’s imagine that when going to the theater, it may be necessary to present a vaccination certificate together with the ticket. If so, then a situation may arise when the offer in some areas is temporarily reduced,” Gašpuitis says.
Even with three digits
Assessing the development perspectives, Strautiņš expresses the opinion that in the first quarter of the year economic activity will still have a large annual deficit, but in the second quarter there will already be a significant increase – both because the total economic base was low and because there will be a significant increase in activity compared to beginning of the year. “The proportion of people who are immune to Covid-19 will grow rapidly, both as a result of the vaccine and the number of people who have been able to cope with Covid-19 on their own. I expect that in the second half of the year limited, but they do not have a significant impact on the overall economy, “says Luminor expert. He cites delays in vaccination as a possible risk factor.
Tourism activities, as a result of which Latvians will spend part of their time abroad, can also have an impact, at least in the second half of the year. “It is very easy to guess which goods and services sales will increase in 2021 – those that were restricted or even banned during the pandemic. It is possible that the accommodation and catering industries will see a triple-digit increase in one or two quarters,” Luminor economic expert.
According to him, this could happen in the fourth quarter of this year, as well as in the first quarter of 2022. “Fantastic growth will also be seen in the leisure and entertainment sector, in air transport. Whether this period starts in the second or third quarter of this year will depend on how the increase in natural and vaccine-derived immunity will reduce restrictions. I also expect a significant increase in clothing sales. “If retail sales suffered a little last year, the decline in clothing sales was significant, which was probably due to the widespread introduction of telework and restrictions on social events,” says Strautiņš.
He says that this cannot be said for sure, but there may be a decline in retail sectors, which saw a big increase in 2020, such as the sale of electrical goods, and that some consumers had more free time and the need to adapt their homes to work. homes, boosted demand for building materials and repair materials.
Loyalty to locals
Some aspects of the crisis also suggest positive change. These include increased consumer loyalty to local products, which is dampening the economic downturn and may contribute to a faster economic recovery once the pandemic is contained.
Shop chain Maxima researched that last year, as a result of the Covid-19 crisis, 12% of the population started to buy food produced in Latvia more often, moreover, the majority of this population (77%) did so in order to economically support local producers. In turn, 28% of respondents admitted that they were motivated to buy local food by a wider range of available local products. When shopping, it was possible to choose the most pleasant and profitable product based on such factors as price, taste and brand recognition. At the beginning of last year, 22% of the population emphasized that they were trying to buy mostly Latvian-made food, but in the second half of the year, 26% of the population had already made a choice in favor of domestic products, according to Maxima retail compass latest industry survey data. It should also be noted that the increase in loyalty to local businesses could also be explained by the fact that the state of emergency has encouraged many to shop close to where they live, often postponing long shopping trips.
It should be noted that the past year has not been assessed negatively in the business environment either. As the banks show Luminor According to the data of an organized survey, 29% of our country’s small and medium-sized enterprises (SMEs) evaluate last year as positive, but 37% of Latvian SMEs plan to expand their operations this year. In terms of assessment, the opinion of SME representatives in Latvia for last year is more critical than the opinion of Lithuanian and Estonian SMEs, but in the plans related to the expansion of operations, we lag behind Lithuania, but ahead of Estonian companies.
Overall, the economy can be expected to recover in the coming years. True, the pace of recovery will depend on the global economic situation.
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