Citadele Bank

Citadele Index: Businesspeople in Latvia More Cautious Than Present Economic Indicators Might Indicate

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The latest version of the Citadele Index study shows that since reaching its highest level in September 2011, the mood of businesspeople in Latvia has once again become more cautious. Manufacturers remain optimistic, but experts believe that all in all, businesspeople are more cautious than current economic indicators would seem to warrant.

The Citadele Index shows that business moods shifted throughout 2011 – in the third quarter, the level was higher than at any time since the beginning of 2008 (51.48 points), while in Q4 the figure dropped back below the level of 50 points (48.54). Manufacturing company representatives remain comparatively more optimistic – 50.40 points. The retailing, service and construction industries had 48.46, 47.99 and 45.76 points respectively. It must be noted that the index rose above 50 points among large and medium-sized companies (52.12 and 53.93 points), as well as among companies with a mixture of domestic and foreign capital (55.32 points) or exclusively foreign capital (51.84 points).

Arnis Kaktiņš, head of the SKDS public opinion research centre: “The Citadele Index is essentially a futures index in that it shows how other macroeconomic indicators might change in future. Since Q1 2010, future prognoses among businesspeople have almost always been more optimistic than their views about the present, while in December 2011 we found that future prognoses became more cautious and can almost be described as pessimistic.”

Economic indicators are higher than business moods in Latvia
Citadele Bank chief economist Zigurds Vaikulis: “Since 2007, businesspeople in Latvia have been more cautious than economic indicators should warrant. Economic growth in 2011 was more rapid than had been expected, and GDP rose by an unexpectedly high level of 5.3%. It is also true that we did very well during the fourth quarter of the year against the background of Estonia and Lithuania. Although the Citadele Index shows that businesspeople are becoming more cautious all in all, the fact is that there are no signs of a crisis in Latvia’s economy at this time. The caution of businesspeople in Latvia probably has more to do with the fact that they are monitoring the global economy, not least in terms of things that are happening in the euro zone.”

“Companies in the machinery and metals industries are more optimistic in general terms,” says Ivars Eniņš, deputy board chairman of the Association of Machinery and Metals Processing Industries. “Our association recently conducted its own survey to find that 56% of businesspeople in these sectors believe that revenues in 2012 will be as high as in 2011 or even higher. Businesspeople feel stable, because this industrial sector stands alongside wood processing as the leading export sector in Latvia. Manufacturing output rose by 34% in 2011. 81% of our products are exported, and that represents 30% of total Latvian exports. At this time we are exporting to 120 countries, and only 30% of our market is in the euro zone.”

Eniņš goes on to say that metal processing companies in Latvia substantially expanded the range of countries to which they export their goods last year, mostly focusing on Northern Europe and other countries which are outside of the euro zone. Eniņš also says that these companies have no lack of orders – only in 11% of cases is output capacity below 50%, employment numbers are increasing, and orders are becoming larger. Zigurds Vaikulis also says that although the euro zone can be expected to slide into a moderate recession, Latvia’s main export markets (Germany, Scandinavia, Russia, the United States) are in a comparatively more stable situation than are countries in Southern Europe.

Agnese Paegle, head of the Citadele Corporate Banking Sector: “Our businesspeople learned to be flexible during the previous crisis and to react quickly to market changes. They have also diversified export markets, and that helps them to be active under the uncertain situation, which currently exists in the European market. The main factors to which businesspeople should devote attention include as much capitalisation as possible, as well as the need to ensure stable and sufficient cash flows.”

About Citadele Index

Citadele Index research is conducted on a quarterly basis in order to find out entrepreneurs’ evaluation of the present situation and prognoses for the next 6 months in such fields as general economic activity in the State and corresponding business field. The previous research, which was carried out in last December polled 750 heads of companies of various sizes from all regions of Latvia representing various spheres of national economy. Citadele Index research is conducted by Citadele Bank in cooperation with market and public opinion research centre SKDS.

About Citadele Bank

Citadele is a full-service financial group for both private individuals and companies offering complete portfolio of banking, financial and private capital management services in its home market Latvia and through its international presence. Citadele is the only collaboration partner of American Express® in Latvia and Lithuania who is entitled to issue American Express credit cards. Presently 75% of Citadele Bank is possessed by VAS “Privatizācijas aģentūra” (State JSC Privatization Agency) and 25% plus one share is possessed by the European Bank for Reconstruction and Development.