Citadele Bank

Citadele Index: Businesspeople Seeking New Developmental Opportunities Despite Governing Pessimism

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Businesspeople in and around Rīga feel comparatively positive at this time, but a more or less distinct level of pessimism is seen elsewhere in Latvia, according to the latest Citadele Index study. This pessimism still means potentially positive changes in that businesspeople are increasingly looking for new developmental opportunities and important investments.

Successful implementation of new aspects of development is no mean feat, because a series of sub-indices in the Citadele Index show that the mood of businesspeople is deteriorating.  They are pessimistic about economic activity in Latvia (41.89 points) and in their sectors (43.61). Asked about the level of competition, responses were at a level of 56.09 points, which shows that businesspeople are seriously concerned about their development and operations in future. The Citadele Index shows a reduction in sub-indices that speak to the work of specific companies – profitability, revenues and financial status, the level in all cases being far below 50 points. A rating above 50 points indicates optimism, while a level below 50 points shows pessimism.

Despite the overall pessimism, however, there is a positive trend in that companies are optimising and diversifying their operations and also increasing investments. Managers plan to continue to invest in the development of their companies, which is seen in the rising sub-index during the past quarter about investments in companies. This sub-index has not fallen below the level of optimism since 2010.

The Citadele Index presence index reflects the views of businesspeople about the situation right now, while the future index refers to prognoses about the next six months. Prognoses about the near-term future remain unchanged, with the future index dropping by nearly two points during the 3rd quarter of the year. Seasonality in these predictions is typical, but this is only the second year since 2011 during which the future index has been pessimistic.

Arnis Kaktiņš, director of the SKDS market and public opinion research centre, says that pessimism among Latvian businesspeople is obvious in that the overall value of the Citadele Index has dropped to 47.39 points. “The only sector in which the index increased during the past quarter was manufacturing, but there is still pessimism among companies in that sector,” he says. “The situation in the building sector and the drop to 43.10 points is no surprise, but that is a serious signal about the situation in that pessimism among such companies is almost the same as at the beginning of 2010. Still, it is interesting that there is an increasing gap between exporting and non-exporting companies, with the values differing just a bit last year, but now finding that exporting companies are 3% more optimistic.”

From a regional perspective, businesspeople feel best in Rīga (49.00) and the metropolitan area (48.07), while more or less distinct pessimism is seen elsewhere in Latvia.  The index has declined during the past two months in Kurzeme (46.32), Vidzeme (46.22) and Zemgale (44.87), but particularly in Latgale (42.84). The mood among businesspeople in the eastern parts of Latvia has been worse than that of businesspeople elsewhere in Latvia since the beginning of 2014.

Mārtiņš Āboliņš, an economist at the Citadele Bank: “Although economic growth in Latvia is stable, the increase in job numbers has been much slower, and various factors have led to fewer jobs in manufacturing and construction, as seen in the Citadele Index and in data from the Central Statistical board. In Rīga, the decline is compensated by new job in the service sector, while job numbers are declining and unemployment is increasing in other parts of Latvia in comparison to last year. The largest decline in job numbers during the first half of this year was found in Latgale and Zemgale, where businesspeople are most pessimistic.  That means that businesspeople are looking to optimise their operations and to make new investments so as to ensure their survival.”

Despite the long-lasting pessimism, some companies are developing and finding new solutions. Concerns about the future, true, are leading companies to be more careful about finding trustworthy partners. This was discussed at today’s presentation of the Citadele Index by SIA LDO Invest board member Olga Larionova from Daugavpils and SIA Kalmeta director Andris Vītiņš from Ventspils.

LDO Invest leases real state in Daugavpils and manages hotels and guesthouses. Despite the fact that pessimism in Latgale is greater than elsewhere, Larionova has a positive view:  “I run a company with several different projects – hotels, guesthouses and flats. That means that the business is not distinctly seasonal, and we work all year round. Good employees are important under conditions of competition, and I believe that when a crisis appears, we cannot give up. We must look for new niches and opportunities.”

SIA Kalmeta director Vītiņš is also optimistic despite challenges related to Russia’s embargo against fish products:  “We manufacture cans and lids for canned products and work with fish processing companies that have had problems because of the embargo – problems that also affect us. We have no plan to give up, though, and we are looking at how to refocus our operations.  That cannot be done in just one day’s time, of course.  We are also looking for new partners, but we are doing so carefully, because the embargo has caused financial problems for more than just a few of our partners, which means that we did not receive payments for some of our deliveries.”

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