Baltic Business Outlook
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Baltijas valstu mazie un vidējie uzņēmumi nākotnē raugās ar optimismu, vērtējot ekonomikas un uzņēmējdarbības vides attīstību. Tas skaidrojams ar to, ka Baltijas valstu reģions kļūst arvien izturīgāks pret Eiropas ekonomikas svārstībām, liecina SEB bankas veiktā mazo un vidējo uzņēmumu aptauja Igaunijā, Latvijā un Lietuvā.
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Baltic Business Outlook
- 1. Baltic Business Outlook January 2014 Estonia Ērika Vaikame-Koit, Member of the Board Ruta Arumae, Expert on macroeconomics Latvia Ieva Tetere, Member of the Board Dainis Gašpuitis, Expert on macroeconomics 29.01.2014. Lithuania Virginius Doveika, Member of the Board Gitanas Nauseda, Expert on macroeconomics
- 2. Widest SME survey throughout the Baltics Sept-Oct 2013 SEB visited companies in Estonia, Latvia and Lithuania Survey about upcoming business year in five areas: In total 4373 advisory meetings were held In total 3680 survey respondents turnover growth investments innovations 2014-01-29 | BALTIC BUSINESS OUTLOOK, JANUARY 2014 export markets employees numbers 2
- 3. Turnover growth expected this year… 25% 67% 8% 74% 13% 69% 11% ESTONIA 13% LATVIA 19% LITHUANIA Optimists over 15% growth Moderate optimists From 0-14% growth Pessimists Decrease Arrow shows a comparison with 2012 2014-01-29 | BALTIC BUSINESS OUTLOOK, JANUARY 2014 3
- 4. Companies are more cautious about their export development compared to 2012 15% 16% 69% ESTONIA 13% 14% 74% 17% 69% LATVIA 14% LITHUANIA Expand into new export markets Expand in current export markets Focused on domestic market Arrow shows a comparison with 2012 2014-01-29 | BALTIC BUSINESS OUTLOOK, JANUARY 2014 4
- 5. Companies planning rapid growth in their turnover intend to recruit more 27% 70% 3% 83% 3% 75% 3% ESTONIA 14% LATVIA 22% LITHUANIA Higher Plan to recruit more people Same Keep the number of employees unchanged Lower Plan to decrease the number of employees Arrow shows a comparison with 2012 2014-01-29 | BALTIC BUSINESS OUTLOOK, JANUARY 2014 5
- 6. Only 3-5 companies out of 10 are open to innovations and organisational developments Product / service ESTONIA 27% Business model 4% Employees Product / service LITHUANIA 26% Business model 3% Employees LATVIA 16% 8% Product / service Business model Employees 26% 2% 4% Arrow shows a comparison with 2012 2014-01-29 | BALTIC BUSINESS OUTLOOK, JANUARY 2014 6
- 7. Turnover growth expectations are related to investment projects and higher competitiveness Investment projects above 30 000 euros 41% Investments below 30 000 euros 20% No investment plans 17% Investment projects above 30 000 euros 27% Investments below 30 000 euros 10% No investment plans 31% Investment projects above 30 000 euros 22% Investments below 30 000 euros 12% No investment plans 35% ESTONIA LATVIA LITHUANIA Arrow shows a comparison with 2012 2014-01-29 | BALTIC BUSINESS OUTLOOK, JANUARY 2014 7
- 8. Conclusions SME’s are cautious about their business activity in 2014. SME’s mostly count on domestic markets growth. Export is somewhat less under attention than a year ago. There will be stability on the job market. Innovation is troublesome factor – half of the companies in Estonia and ¾ in Latvia and Lithuania are not planning to improve their business this year. 2014-01-29 | | BALTIC BUSINESS OUTLOOK, JANUARY 2014 SME’s expect considerable investment activity, but more on small-scale. For long-term success more attention to innovation is needed. 8
- 9. Baltic Business Outlook, January 2014 Estonia Ērika Vaikame-Koit, Member of the Board Ruta Arumae, Expert on macroeconomics Latvia Ieva Tetere, Member of the Board Dainis Gašpuitis, Expert on macroeconomics Thank You! Lithuania Virginius Doveika, Member of the Board Gitanas Nauseda, Expert on macroeconomics
Editor's Notes
- Estonia:A main driver of economic growth continues to be domesticconsumption that will benefit the most the retail and wholesalesector. Also other domestic consumption related sectors willlikely continue to perform better than the average, similarly tothe previous year. These include for example the information andtelecommunications sector, which success is also based on being the most innovative sector.Latvia: This year, growth will continue within sectors of nationaleconomic importance such as sales and construction. Theprocessing industry is also expected to make a contribution thisyear. If LiepājasMetalurgs returns to operation (most probably,with a more limited capacity than before the initiation ofinsolvency proceedings), growth might be much higher than in2013. Growth can be expected in the commercial services sectoras well. If the improvements observed in the foreign markets willcontinue to strengthen, this will be reflected in public sentimentand activity will also continue to grow in the real estate sector.Complications are possible in the field of transit, where both thespeed of recovery of the euro-zone and geopolitical considerations,including the policy pursued by Russia and the Latvianindustry capacity, will play big roles.Lithuania: In 2014, domestic demand should take the lead over exports.Therefore, the sectors oriented to domestic market are likelyto perform better than the tradable sectors. Increasing incomeand employment will support growth of retail trade. Recoveryin construction and real estate markets, which was quite timidin 2013, is likely to strengthen more notably this year. Serviceproviders also are likely to be among those benefi ting from rising domestic market. Among industrial sectors, producers ofchemical products (mostly fertilizers) predict a better year as compared with 2013.
- Estonia:Estonian economy is highly export oriented and dependent onexport market performance. The size of exports measures to90% of GDP. 18% of total exports are directed to Sweden, 15%to Finland, 13% to Russia and 11% to Latvia. The performanceof the export markets will diverge in 2014. On Swedish market, asolid economic growth is expected to continue. That is favouringmost of Estonian exports. The largest export article – electronicsmanufacturing – will depend on global economic recovery.Finnish and Russian economy will still struggle and show onlyvery modest growth. That is constraining food industry’s export and machinery.Latvia: In view of global forecasts,exports should become more active in 2014. Moreover, in thesecond half of the year, alongside more positive trends in externalmarkets and the delineation of new lines in the allocation ofEU Funds, investment activity might also increase. Activity will beclosely related with the decrease of uncertainty in the Eurozoneand further growth prospects of the region.Lithuania: In 2014, most of Lithuania’s export markets are expected to growfaster than in 2013 but the development will still be quite slow.Russia, Lithuania’s export target No. 1, will continue struggling asits growth will slightly accelerate but remain below its potential.The probability of political trade restrictions from Russia alsomay not be ruled out. However, the profit margins are usuallyhigher in Russia’s market than in the Western Europe. Growthrate in Germany, Estonia and Poland is expected to double ascompared with 2013, and therefore demand for Lithuania’sgoods in those markets should strengthen. General risks toexport growth will include high statistical base and expectedgradual deterioration of competitiveness as wages and salariesstart rising faster.
- Estonia: Labour market is the factor challenging all the companiesthe most. Lack of qualified labour force will haunt despite theeconomic growth rate going forward. Salary growth will becontinuously rapid. The pressure of wage growth will persist,but will not accelerate. In the same the factors keeping wagegrowth high persist: limited availability of qualified labour force,mismatch of the skills in the labour market and emigration. Onthe other hand, slow economic growth will keep wage growthfrom accelerating further. At the same time, wage growth will bemore consistent with the productivity growth in 2014 than it wasin 2013. This is fostered by accelerating economic growth rates,while employment will stay unchanged.Läti: The increase in economic activity continues to push up wages,which increased by 5.1% in the third quarter, as compared to thesame quarter of the previous year. The increase in wages in thepublic sector was 5.3%, including the general government sector,where it reached 6.2%. It was closely followed by the privatesector, where the increase was 5%. The slightly larger increaseof wages in public administration is in line with projected trends,and there is reason to believe that a similar trend will continuein the future as well. The strong grip of austerity loosens, andpreconditions for the wage increases improve. Those who workin local governments and public and municipal capital companieshave far more chance of having their wages increased. TheState budget will not be able to satisfy all the demands for wageincreases for quite some time. Wages in the private sector will becontingent upon the profitability of each individual sector andcompany as well as labour market conditions. Part of the potentialincrease will partly dissolve in the shadow economy. Therefore,variations between sectors and companies will continue tobe very uneven and diff erent in pace, as a result of which quitea large share of workers will not experience any change in theirwages this year either. Accordingly, the wage increases will notbe comprehensive, but rather selective for the time being. It willdepend on the development and staff policy of each individualcompany and the labour market situation. Sector specialists andworkers in rapidly developing sectors will be in a better situation.Evidence suggests that in the mid-term, the pressure to increasewages will only increase, and this will pose risks to competitivenessin the longer term. Weak inflation will continue to have apositive impact on purchasing power. So far wage growth is inline with productivity growth and poses no risks to the economy.However, if investments in productivity will lag in a longer termthis may raise risks to competitiveness.Lithuania:As no minimum wage increase is envisaged in 2014, wage growthshould somewhat slow down. SEB Bank’s wage growth forecastfor 2014 stands at 5.5 per cent, down from 6.0 per cent in 2013.Decreasing unemployment and labour shortage problems insome sectors, stable profitability of companies as well as pent-upincrease in wages will be the main macroeconomic factorsbehind the increase in earnings. On the one hand, increase inwages and salaries will hurt export competitiveness, on the otherhand, it will support recovery of domestic demand. In 2013,for the first time in 4 years, wages and salaries started risingfaster than labour productivity but the loss of competitivenessremained small.
- In all countries there’s a correlation between companies turnover ambitions, plans to increase the revenues (optimists) and innovation activities, leading us to the conclusion that optimists are not counting to natural market growth. The growth expectation must be strongly correlated to their internal activities and developments. Another angle is that optimists are also more open to the foreign markets and exports. So, another indirect conclusion is that optimists are aware of the foreign markets’ and competing situation, which requires continues improvements in offering. In terms of different innovation types, still seems that the growth expectation is related only to product/service innovations. In other innovation areas the differences between optimists, moderate optimists or pessimists aren’t outstanding. The positive aspect is that even in moderate optimists group (planning to increase their turnover up to 15% in 2014) 21-25% of companies are having intention to innovate in product/service area. Comparing three countries, still the biggest difference is that in EE even pessimists are open to invest into people.
- Estonia: Low interest rates will encourage investments. On the otherhand, investments growth will be constrained by uncertainty ofglobal demand recovery. Financing decrease, which is related tothe EU structural funds temporary slump, is affecting negativelythe investments into buildings. At the same time, low interestrate environment persistence may trigger more real estateinvestments and rapid real estate price increase continuation.Banks’ lending policy will prevent from new real estate bubbleemerging at this point of time. Productivity-enhancing investmentsare expected to increase in order to mitigate the strainsin the labour market and which are aimed to ease the pressurestemming from the limited availability of qualified labour force.Latvia:So far demand for loans has been weak. However, investmentneeds are mounting as to improve competitiveness and raisecapacity utilization. Entrepreneurs remain cautious and prefer refrainingfrom borrowing, as uncertainty is at high level. Sustainedby favourable conditions, low interest rates and clear prioritiesin EU funds distribution investment growth may pick up in thesecond half of this year.Lithuania: Credit interest rates for companies remain close to all-timebottom in both euro and national currency (e.g., in November2013, new loans to companies were issued at 4.78 per cent and3.09 per cent in Lithuanian market, respectively). However, creditgrowth is rather modest due to sluggish borrowing demand.Investment growth was weak for several years after the crisis,capacity utilization in manufacturing is high and therefore theneed for investment is pressing. Nevertheless, companies remaincautious and prefer refraining from borrowing, if they are able tofinance the investment from their own resources. On the otherhand, business confidence has been gradually improving andthe optimism in the construction and real estate market is rising.Helped by continually low interest rates, investment growth mayturn to be stronger in 2014.
- The SMEs in the Baltics remain upbeat about the economic and business outlook as the region is becoming more resistant to the fluctuations of the European economy.Positive news are expected in the company turnover, especially in Estonia with about 25% of the SMEs expecting sales increase of at least 15%. Turnover growth is seen also Lithuania and in lesser extent in Latvia.· However in the Baltic countries higher turnover will be mainly driven by the domestic demand, not as much by the exports.· About two-thirds of Estonian and Lithuanian and three-quarters of Latvian SMEs concentrate on the domestic market, with the ambitious minority eyeing the export markets, either by expanding the sales or entering the markets abroad.· Although the Baltic SMEs expect considerable investment activity, less than a half of the companies expect to invest more than 30,000 euros, in Estonia 41%, in Lithuania 35% and in Latvia 27% of the companies.· The same applies for innovations where less than one-third of the polled SMEs expect to make changes in business model or in products and services.· For remaining competitive in the export markets, both higher investment and innovation activity would bolster the prospects of the companies.· With a number of companies planning to hire, a large share will keep the headcount unchanged – 83% in Latvia, 75% in Lithuania and 69% in Estonia, indicating the stability of the job market.· By sectors, in Estonia the manufacturing recorded the highest optimism while in Latvia and Lithuania the construction sector has the most promising outlook.