Month on month turnover in retail trade enterprises selling textiles, wearing apparel and footwear decreased by 13.7% and in specialised stores selling mainly food, beverages and tobacco by 12.6%. Turnover in retail trade enterprises selling pharmaceutical and medical goods, cosmetics and toiletry increased by 2.5% month on month, while non-specialised stores, selling mainly non-food increased by 22.1% and stores selling furniture, household goods, electrical appliances and construction materials saw their sales rise by by 2.9%.
On another front I mentioned in this post about retail sales in Estonia that I didn't really see any major time lag between economic events in the two countries looking at the retail sales chart. Latvian Abroad chimed in with the following:
I think 2) (the one year time difference) used to be true - until the present credit crunch which was simultaneous. Construction boom took off 1-2 years later in Latvia (compared to Estonia) and so on.
Now, the events are mostly simultaneous. One exception is that Estonian exports are already declining year-on-year (loss of competitiveness?) while Latvian ones are still growing. Latvian salaries are 20-30% below Estonian which is around 1 year at the present salary increase rates - that could explain it.
Well this is an interesting point about wages that I hadn't really thought about. Basically I've been looking at year on year wage increase charts, but basically not coming from the region I'd missed something so obvious as the relative differences in wages between the countries. So I went and checked out the data a bit.
First of all the comparative wage indices for the two countries.
Well, so far so good I thought. All the way back to 1996 the two countries seem to track each other pretty closely, indeed with the last litle extra sprint arguably Latvia has more or less positioned itself vis a vis Estonia in the position it was back in 1996. But of course none of this tells us about the RELATIVE wages (as opposed to the relative movements in wages) between the two countries, and this was Latvian Abroad's point I think.
So then I checked out the data for average monthly and average hourly wage costs.
So there I think you can see it, Latvian Abroad is right, there is a significant difference in the wage levels between the two countries, although I wouldn't be tempted to move beyond this and make any more general comparison here (like Estonians are better paid than Latvians, although they may well be), since it all depends on the levels of productivity involved and the value content of the work people are doing. But the difference is striking and interesting, although going back to the wage index chart I can't see any real evidence of these proportions changing in any systematic way. Neck and necking it I would say, and when we start to look at the inflation side what we have to say is that what is going to matter is just how much all these wages will actually be worth - in either case - when the current "doin is done".
On the other hand Latvian Abroad's point about how it is that Latvia is still at this point able to increase exports to some extent while Estonia seems to have entered decline may well be an interesting and valid one.
8 comments:
Latvian average monthly wage cost must be wrong here.
Average salary in Latvia in Q1 2007 was LVL 357 = 510 EUR. And I do not belive that taxes on salary are practically 0 there.
http://www.paritate.com/en/leta/2007/May/news05-07-019/
Maybe problem is that some taxes are in estonia employer taxes and in latvia employee taxes etc. Somebody should check that.
Estonian export has so far not decreased because of loss of competitiveness, although this may also be an issue soon, but the reason is sanctions applyied by Russia (transit volumes are significantly lower). If to look more precisely, what is it, that Estonia doesn't export so much any more, then it appears to be different oil products actually coming from Russia. No big deal therefore.
Hi,
Just to say that I have seen the comments but I am running this morning so don't have much time. I will try and dig into the wages thing a bit more over the weekend and add another comment.
Exports do matter. Unfortunately it isn't important what the explanation is for why they are down, since with domestic demand crashing export growth is all there is left. So competitiveness will be an issue, regardless of whether the push comes to shove situation comes this month, or next month, or the one after ......
Basically I think the next two or three months on the export side is going to tell us a hell of a lot. With the currency pegged either you have to get a hell of a lot of productivity very very quickly in the export sector (something which is going to be very difficult I think), or wages are going to have to come back down the path they have just gone up. There aren't other alternatives I think. Obviously you can have a mixture of these two, but the rate of wage increases is so large, and it is so comparatively difficult to get productivity above say a 3 or 4% annual level (especially given the comparatively tight labour market, ie there is not an infinite supply of bright young talent just waiting to be snapped up) that it is hard not to foresee either drastic wage deflation or a break in the peg. As I say the next two or three months will tell us a lot here.
Meantime anyone with anything useful on the wages front please chip in.
Incidentally, thank you for your comments:
"If to look more precisely, what is it, that Estonia doesn't export so much any more, then it appears to be different oil products actually coming from Russia. No big deal therefore."
I take it what you are saying is that these are simply re-exports with no value added in Estonia. Someone must be losing some money somewhere because of this, but I agree it is not a key issue.
The point LA is making is that in December exports fell at an 8% annual rate, while imports "only" fell at a 3.9% rate (provisional data). But we need to be careful, since one month doesn't tell us very much. During the 2006/2007 period monthly changes in exports and imports tracked each other pretty well, with import growth being above export growth till the autumn of 2007 (this would be the consumer boom). Then in the autumn the situation inverted as domestic demand folded, and exports started to do better than imports, especially in October and November. Then we get December. Like I say, lets wait and see, but we need all to be aware that this inflation which is still inside the system is now doing no end of harm, since if you want to keep the peg then this is going to have to be all unwound, and it isn't clear to me how you can do this.
To use a somewhat crude metaphor, inflation is like a worm which gets lodged inside your intestines. It is damn easy to get in by swallowing the wrong food, but it is much harder to get out, and meantime it wastes away the whole vital system.
anon #1: Latvian 2005 and 2006 numbers in the graph look like 2005 Q4 and 2006 Q4 averages for gross salaries from Latvian Statistics office. They look about 15-20% higher than the full year averages.
If Estonian numbers are also Q4 averages, it's a valid comparison. Otherwise, the salary gap is even bigger than in the graph. (That would be hard to believe for me.)
Tax-wise, both Estonia and Latvia have flat taxes with roughly similar rates (25% in LV, 24% in EE). Latvia also has employee-paid social security contributions of 9%. I'm not sure about EE in this respect but even if they have all of social tax paid by employer, 9% is not even close to big enough to explain the salary gap.
So, whatever adjustments one makes to the graph, the main point about the salary gap stays there.
anon #2:
I think oil transits are not normally counted towards exports nor imports. If Estonia is doing otherwise, they are artificially inflating their trade volume.
Correction to my first comment: I just noticed that the graph is "wage costs" rather than "wages". So, it's probably wages+employer paid taxes and in that case Latvia's numbers for 2005 and 2006 look right.
Please, disregard my first comment.
Hi,
Thanks for the feedback LA.
"So, it's probably wages+employer paid taxes and in that case Latvia's numbers for 2005 and 2006 look right."
Yep. They should do. This data comes from Eurostat. I prefer to use it for comparative data, since you have to imagine that they have full time statisticians who look into all the methodological issues. As I say, I will try and chip in with more over the weekend, but right now I am up to my eyes in it in other areas. Eg don't miss today's whopping Ukraine inflation figures (21.8%), and the fact that labour shortgages are now really biting there. Weren't you guys hoping to importa some labour from Ukraine?
And the Hungarian financial markets seem to be going potty before this Sunday's referendum. Do keep an eye on all this, since I can't help feeling that all your short term futures are being decided in the battle that is being fought out right now in Budapest. They removed the trading band last week, so the forint now is effectively floating.
If Hungary crashes there will be consequences for everyone.
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