Citadele Bank

Citadele Index: Latvian Entrepreneurs Reacquired Optimism

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Entrepreneurs in Latvia have reacquired cautious optimism during the 1st quarter of this year, almost reaching the level of the late 2007, suggests Citadele Index study performed by Citadele Bank in collaboration with market and public opinion research centre SKDS.

Entrepreneurs in Latvia were in a cautious and somewhat pessimistic mood in the late 2011 however recent data suggests that they have reacquired cautious optimism during the 1st quarter of 2012. Business people’s mood index has reached 51.89 points which is the highest peak since the beginning of 2008. Similar levels of optimism existed in the late 2007 when the index was 51.93 points.

“Comparing to the end of the last year, the psychological backdrop has significantly improved in Europe. Euro zone was staggering on the verge of an immediate systemic financial crisis during the last months of 2011, and media were full of alarming headlines. This was obviously reflected in the worst indices of Latvian entrepreneurs’ mood. Since then, mostly thanks to the aggressive and decisive measures taken by the European Central Bank, the systemic risks have significantly decreased. Interest in risk assets had revived in the financial markets during the first months of the year simultaneously with entrepreneurs’ mood indices in Latvia and across Europe,” explains Zigurds Vaikulis, Chief Economist of Citadele Bank.

He also admits, that “the fact that the new orders placed with Latvian processing industry, especially in export, presently remain at a comparatively level which definitely is an asset."

However, Mr. Vaikulis points out that “improvements in Latvian business people’s mood during the 1st quarter are not that significant to draw rapturously optimistic conclusions regarding the future. Similarly as seen in the previous quarters of account, Latvian entrepreneurs’ mood continues to be cautious”.

Indices of Citadele Index study regarding the present and the future suggest that entrepreneurs’ mood presently continues to be cautious (47.94 points). However the future index has increased significantly (from 48.58 points in the late 2011 to 55.83 points in March this year). This means that Latvian business people are comparatively optimistic regarding the next six months.

Cautious optimism is characteristic to all industries
Cautious optimism exists in all industries in the 1st quarter of 2012 as opposed to the cautious optimism which existed only in the manufacturing industry in the late 2011. The most optimistic entrepreneurs are the ones who represent the manufacturing industry (54.03 points) followed by their counterparts conducting business in trade (52.12 point) and services industry (50.92 points). The lowest value of the index continues existing among entrepreneurs who represent the construction sector (50.62 points).

The index also exceeds 50 points in terms of the number of employees in the 1st quarter of 2012 among all company groups, including micro enterprises.

Considering the breakdown of enterprises into groups according to their turnover, one can observe that all company groups exceed 50 points, except for the ones with the lowest level of turnover, i.e. up to 25’000 Lats during the last financial year. However, comparing to December 2011, this is the group, which has seen the biggest increase in its mood index (from 44.92 points in December 2011 to 49.38 points in March 2012). Enterprises whose turnover exceeded 1 million Lats during the last financial year were the most optimistic ones (56.76 points).

Rural entrepreneurs are the most optimistic ones
Considering entrepreneurs’ mood according to the types of inhabited areas, one can see that business people in rural areas (52.79 points) and Riga (52.33 points) are the most optimistic ones. Entrepreneurs in other Latvian towns tend to be less optimistic (51 point).

“Entrepreneurs’ optimism in rural areas can be explained with the fact that various EU and national support programs are available for agricultural enterprises,” comments Agnese Paegle, Head of Corporate Banking Sector at Citadele.

Entrepreneurs are most optimistic in terms of competition and investments
Citadele Index study suggests that entrepreneurs in Latvia are most optimistic regarding competition in their sectors (56.49 points) and amount of investments in their companies (52.76 points).

“Business people’s opinion regarding the amount of investments has been increasing since the 3rd quarter of 2011. The study that was conducted in the late last year suggested that in 2012 Latvian entrepreneurs plan making bigger investment injections into the development of their businesses than the ones made in 2011. Business people also seek larger long-terms funds, instead of small short-term loans, from banks which is in line with the opinions expressed regarding planned investments,” explains Agnese Paegle. She points out that “we see this also in Citadele’s practice – during the last year business people have become much more interested in implementing new projects and expanding businesses, including entering new exports markets. The majority of corporate loans our bank has issued until the end of March were funding for business expansion.”

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 March 2012 polled 750 heads of companies of various sizes from all regions of Latvia representing various spheres of national economy.

About Citadele Index

The key task of Citadele Index is to obtain a unified index that characterizes entrepreneurs’ subjective assessment of economic conditions in the state. Citadele Index is calculated by summing up and assessing poll results obtained from managers of 750 enterprises of various volumes and representing various industries. The index also reflects entrepreneurs’ opinion and situation prognoses for economic activity in the State, economic activity in different industries and various business activity indices: profitability, turnover, financial condition, number of employees, amount of investments. If the index exceeds the value of 50 points, it speaks of optimism among entrepreneurs. Pessimism can be observed when it drops below the value of 50. Citadele Index studies are conducted every quarter.

About Citadele Bank

Citadele is a local Latvian bank which offers banking, financial and asset management services. Citadele group is represented in the Latvian market as well as in 10 other countries. Citadele Banka is the only collaboration partner of American Express® in Latvia and Lithuania who is entitled to issue American Express credit cards. Citadele’s vision is to become the most valuable financial group in the Baltic States. 75 % minus one Citadele Bank’s shares are possessed by the State Joint Stock Company Privatization agency on behalf of the Latvian State and the owner of 25 % plus one share is the European Bank for Reconstruction and Development (EBRD).

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