Retail zigzags in 2014 ensured a course of growth

Retail trade in the fourth quarter continued to grow – year-on-year sales amounts increased by 4.0% and quarter-on-quarter, by 1.5%. In 2014, trade posted a 3.6% growth compared to 2013. Even though trade overall demonstrated growth, 2015 is also likely to be a cautious one.

What 2014 was like?

Let us remember that before the euro introduction, the population spent their cash accruals more actively, therefore, after this increase in expenditure, more moderate retail results were likely.  This assumption was borne out: in January and February of 2014, a rapid drop in sales amounts was experienced.  In March, retail trade was again more vigorous to experience a real "explosion" in consumption in April during the warm Easter.  This was again followed by ups and downs, but with a more pronounced upward trend up to the end of the year.

Even though trade overall was on an upward trend, it was outpaced by wage increases, with the population remaining cautious and forming their accruals slightly more actively. In  2014, the real net wage increased by about   8% - so that is the wage from which the tax part and impact from inflation have already been excluded. The growth in employment was worse than expected, however.

Caution of the population and pessimism of traders on the rise

Behind the caution shown by the population are several factors, including the uncertain geopolitical situation and the insufficiently fast economic recovery in Europe. Domestically as well, the drop in the rate of growth is becoming more pronounced and legislative initiatives have been passed more in the direction of contracting rather than stimulating the economy, e.g., the amendments to the Immigration and Insolvency Laws as well as the micro taxation regulation (the latter, however, has been relaxed recently).

The mood of traders has deteriorated in recent months, which could be explained by the caution of the population in expenditure and the tighter purses of foreign guests. In 2014, as a result of deteriorating purchasing power, the number of Russian guests has declined but it was more than compensated by visitors from other countries.  This was particularly promoted by Riga's status as a European culture capital. At the end of the year, however, the celebration of the New Year and Russian Christmas holidays, which before drew mostly Russian tourists, in the 2014/2015 season saw cancellations of many reservations and these were not taken over by guests from other countries. This must have affected the shops where designer clothes, jewellery and other such items are sold and in which these tourists often shopped.

2015: a year of caution

Given the "gap"  in tourism and the relatively pessimistic outlook by consumers and entrepreneurs, the beginning of 2015 is marked by bad news. The first half of the years, however, is likely to be improved by Latvia's status as the presiding country of the European Union, which will continue to attract visits by foreign guests, as well as by the gradual resumption of work by "Liepājas metalurgs". Overall, however, 2015 will in all likelihood be a year of caution because weakness of the Russian economy is practically unavoidable, which will affect both tourist activity and expenditures and the uncertainty of the population  regarding future income. This last factor is the most important one, because private consumption  already in 2014 was the determining factor behind the growth of gross domestic  product and it also is proportionally the most important, accounting for about 62% of GDP. The contribution of tourists, on the other hand,  amounts to, at most, 4% of GDP.