The level of registered unemployment had declined steadily from 8.7 pct in late May 2004 to 4.8 pct in November 2007. Since November the tendency is now up again. This is yet more indication of the presence of an economic slowdown in Latvia.
The unemployment rate in Latvia at the end of 2007 was 4.9 pct of the economically active population, while at the end of 2006 it was 6.5 pct. The unemployment rate increased 0.1 percentage point in January 2008 over December and reached 5 pct of the economically active population. There were 53,325 unemployed registered with NVA in late January 2007.
So my feeling is that Latvia is now out of the "extreme overheating" stage - and probably came out around in May-June (which isn't to say there wasn't a lot of momentum left in the system at that point). If you look at the charts included in my December Retail Sales post earlier this month you will see that retail sales growth really peaked during the first quarter. Manuafacturing output has been in fierce retreat since July, while the property market seems to have turned around May-June. In part this exiting from overheating will have happened becuase a process as fierce the one which took place in Latvia almost has to choke itself out of its own accord, and also possibly because of the tightening of the credit conditions applied after April, and the impact of this tightening on the housing market.
Also if we look at this unemployment data, it is clear that the labour market turned in October/November, and employment is normally a lagged indicator, which means it only responds after the horse has started to bolt. So my feeling is the overheating situation is now dead and gone, and what people need to think about are cushions to try and soften the landing. Which is why I am not 100% opposed to the idea of fiscal loosening at this point.
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