Artur Eresko ◦ The buyers are slow to saddle up

Artur Eresko ◦ The buyers are slow to saddle up

05 May 2016

As of November last year retail sales in Latvia have noticeably toned down increasing in trade turnover. And February was no exception. In the reporting month it was specifically noticeable in the non-food goods segment, where the key perpetrator of slowdown was the falling-off in sales of petrol by 10%.

In February 2016 as compared with February 2015 the rates of increase in retail volumes made up just 2.3%. By way of comparison: the year before there was talk of gains by more than 9%.

As to petrol, the reasons of slowdown could be few. First, the year before the petrol trade turnover spiked against the visibly battered prices. Hence, it could be said that this year sales at fuel stations got back to the norm. Second, February 2016 was noticeably warmer than normal, and the drivers did not have to warm up their iron horses for a long time and spend extra fuel.

But February was unsuccessful not for all representatives of the non-food goods sector. If to exclude the petrol sales, then 6.1% growth was observed in the non-food goods segment. Judging by the statistics, the Latvians were lavish with buying gadgets, sporting goods and medicine.

The most noticeable jump was registered at stores dealing in equipment of information and communication technology (+22.5%), goods in the sphere of culture and recreation (+16.4%), pharmaceutical and medical supplies (+11.1%), as well as clothes, footwear and leather goods (+8.5%). Shopping on the Internet and by mail order continues gaining popularity. Increase in this trade group has grown over the year by 28.1%.

In light of the abovementioned figures it is too early for merchants to ring alarm bells – evaluation of the consumption growth this year by contrast to the last one is quite optimistic.

The final result will be influenced by the consumer sentiments. Despite the weak beginning of the year, in the subsequent months the consumptive activity of the Latvians simply must get back to the previous level.

Such forecast is based on the unfailingly favourable trends for further consumption growth in Latvia. That’s the steady growth in actual wages and macroeconomic development of the country and positive trends in the labour market.

Spending on non-food goods remains the key engine of consumption. This, to a larger degree, reflects also how consistently the residents of Latvia feel.

The retailing forecast should consider also the flow of tourists and changes in their spending power. This makes sellers to revaluate the existing offers, by shifting emphasis from the Russians to our neighbours from Lithuania and Estonia, as well as to the travellers from Western and Northern Europe.

Candidate of Economic and Legal Sciences - Artur Eresko (Артур Ересько).

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Artur Eresko ◦ Eurozone development in 2017: slowly, but consistently
If for European policy the year 2017 promises to be complicated (elections, Brexit, unpredictable relationship with new government of the USA, trade wars with Russia), while in the economic aspect the new year promises to be quite not bad. At least, for the eurozone countries.

The past year was distinguished by controversial signals concerning the economic growth in the eurozone, however, in general, as a result, positive news prevailed. The eurozone in 2016 demonstrated its soundness under the influence of internal and external shocks.

Despite strong tension in the market in January and February of the past year, Brexit and continuing weakening of the global market, trust of business and of consumers in the eurozone remained amazingly stable. GDP, according to a tentative forecast, grew in 2016 by substantive 1.6%. So, the past year became the second year of a visible growth of the zone of Euro.

Today we can presume that the moderate rates of recovery of the economy of the currency block shall preserve also in 2017 – GDP of the region shall grow yet by 1.5 %, at the least.

The key risk factor for the European economics this year is the policy. Europe this year will again encounter a clear-cut political uncertainty, which might affect determination to invest.

This is about elections scheduled in Europe to 2017: in the Netherlands, in France, in Germany and, probably, in Italy. After the populist surprises in Great Britain and in the USA a similar result in Germany cannot be ruled out.

Anyway, in Germany the parliamentary elections ought to take place this year, which will result in the election of the chancellor of the country. France will elect its president, in the Netherlands — parliamentary elections. In Italy the situation is different: resigned at the end of the last year from the post of Prime Minister Matteo Renzi did not exclude in the middle of December that early parliamentary election might take place in June 2017.

Nevertheless, so far we can forecast the growth of investments in the eurozone this year by 2.5%. This is, however, slightly less than 3%, achieved in 2015 and in 2016.

While inflation in the eurozone is forecasted at the level of 1.5-1.8 per cent.

The eurozone has lived for several years under the low inflation condition, even the risk of deflation was emerging, which threatened the process of recovery of economics of the region. This year would considerably weaken or even remove the low inflation risk.

Here it is important to mention that in December last year inflation in the eurozone already jumped by half a percentage point – to 1.1%, which practically was completely caused by oil price hikes. There are not yet any signals of a new fall in price of a barrel, and there is no reason to be worried of a stop of rise in consumer prices in the eurozone countries.

Artur Eresko (Артур Ересько), candidate of Economic and Legal Sciences.
Artur Eresko ◦ Foreign trade: the deficit shrank to the minimum
The jerk of woodworking industry in September failed to compensate hard landing of export of oil and grain crops. In general, export of Latvian goods in September as compared to the same month of the previous year declined by 2.7%. Over nine months of this year the fall in export of goods made up 1.6% as compared to nine months of 2015.

If to consider in annual terms, then the largest share of contribution to September fall is attributable to re-export. Exactly the fact that the volumes of export of minerals (oil and petroleum products) continued falling (-33.1% in September). This partially can be explained by recent official message on gradual termination of export of Russian petroleum products through Baltic ports. Based on sentiment prevailing in Russian state-owned enterprise Transneft, as well as determination of the Russian party to load, first and foremost, its ports at Saint Petersburg and Leningrad Oblast, most probably, no positive trends in this industry are forthcoming either.

An annual growth of Latvian export is weighted down by export of food from Latvia as well, which shrank by 6%. This is connected with a major fall in export of grain crops (-54%). Here there are two reasons. First, the last year’s crop appeared to be record-breaking on many articles. Accordingly, the current – usual - crop is losing in terms of volumes of harvested and exported grain crops. Second, because of favourable weather the export of grain crops this year began one month earlier than usual: in August the annual growth in export of grain crops grew seven times, but in September noticeably shrank.

Apart from oil and grain crops, the decline in export was also marked in such segments as mechanisms and equipment (-8.2%) and metal ware (-6.3%).

In its turn, woodworking keeps on delighting, where the annual growth of export achieved 10.1% (inter alia, the gain in export to Great Britain made up 26%).

Fears associated with Brexit doubled the energy of Latvian exporters of wood and wood products, who are hurrying to sell as much as possible before exit of Great Britain from the EU. But the date of this monumental for Europe event becomes more and more uncertain. So, the Supreme Court of Great Britain took a decision that the government may not start the Brexit procedure without approval by the Parliament. What would eventually decide the servants of British people is unknown. Anyway, it means postponing of the moment of kiss off, which is positive news for Latvian exporters.

Moreover, the general growth was facilitated by export of furniture (30.9%) and chemical products (7.6%).

Nevertheless, the deficit of foreign trade of Latvia in September shrank to the lowest over the recent year level. In September the deficit of foreign trade in goods made up 87.1 million euro and this is the lowest index since 2010.

Artur Eresko (Артур Ересько), candidate of Economic and Legal Sciences.
Artur Eresko ◦ Construction projects are waiting for a signal from Brussels
Latvian statisticians have calculated the number of houses, workshops and roads that have not been built.

Last year, in comparison with 2015, the volumes of construction products in comparable prices for calendar-aligned data decreased by 17.8%. In absolute terms, the fall was 318 million EUR.

Overall decline does not look so terrible when looking at construction of engineering facilities in 2016 where 33.3% collapse was recorded.

In 2016, the decline was noted in almost all areas of engineering construction, including ports, waterways, dams and other hydraulic structures - by 31.3%; bridges, overpasses and tunnels - by 29.9%, motorways, streets, roads, runways and railways - by 29.5%.

There are, however, certain areas where life is getting better. Volume of construction of main pipelines, communication lines and electric power transmission lines has increased by 6.2%.

Not everything is so bad in the residential sector. During a year, the increase in construction of residential buildings was 2%. Moreover, if compare the fourth quarter of 2016 with the same period of 2015, then can speak of a boom: construction of residential buildings has increased by 36.5%!

However, emergence of new apartments and power lines could not change the overall sad trend. Latvian construction industry depends too much on the orders of public sector, which in turn is strongly dependent on EU funding. This financing in 2016 was the most meager in recent years.

Thus, development of construction industry is hampered by low utilization of EU structural funds. Although for 2016 a decline in cash flow from the EU coffers was predicted, at the beginning of the year it was impossible to foresee that the financial flow would become so low and, as a consequence, would affect so much the volumes of construction. As a result, the current drop in construction is comparable to the fall in output in the 2008-2010 crisis.

Question of future growth of the construction industry should be put not to Latvian builders but to Brussels bureaucrats who have demonstrated their unpredictability in transferring European subsidies to poor EU countries.

At present, European financing is expected to be received in the second half of 2017. Then new construction sites will appear in Latvia.

It can be also predicted when these construction projects will begin to close again. In 2020, European financial assistance will be sharply reduced. It can be said for sure. But it is, unfortunately, impossible to assert that by this time also private and public investments in the construction sector will grow sharply.

Artur Eresko (Артур Ересько), candidate of Economic and Legal Sciences.