Latvia’s economy continues to recover from the Covid-19 shock, and sustained domestic consumption is one of the reasons why the economic downturn in Latvia this year will be significantly smaller than expected at the beginning of the crisis.
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According to the information published by the Central Statistical Bureau, retail trade in Latvia has been growing positively for the second month in a row and in July the turnover has increased by 3.8% compared to the previous year. Thus, trade volumes in Latvia have already returned to the pre-pandemic level, and the mood of traders is currently significantly better than that of other sectors.
In July, the trade in household electrical goods grew the fastest in retail trade, the sales volume of which increased by 27.1% compared to July of the previous year. Trade in cultural and recreational goods also increased by 12.3%, while trade in the Internet increased by 8.6%. Meanwhile, trade in footwear and clothing has decreased by 3.2%, while sales in the markets have decreased by almost 10%.
We have also seen these trends in retail in recent months in the bank’s customer payment card transactions, but it is important to remember that sales are not all consumption, and the service sectors are not doing so well at the moment.
In trade, the risks of Covid-19 proliferation are certainly lower than in the entertainment and other service sectors, which are still severely limited. For example, people still spend more than 30% less on airfare, entertainment and hotels, and people have shifted part of their consumption from services to goods. With the recovery of the services sector, consumption is likely to shift again to services.
The situation in trade is definitely significantly better now than in the economy as a whole, and retail trade in Latvia is likely to grow even slightly this year. This is also one of the reasons why the fall in GDP in Latvia this year will be smaller than expected and could be in the range of about 4-5%. However, there are growing signs that the initial rapid recovery phase of the economy is over and improvements are slowing.
Unemployment remains above 8%, wage growth has slowed and economic sentiment in Europe in August shows only a modest economic recovery in our main export markets. At the same time, the number of Covid-19 cases in the Baltic States has started to rise again, posing new risks to both trade and economic development in general.
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