Citadele Bank

Citadele Index: Economic changes and tax reform spark renewed optimism in business owners

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For the first time in three years, the mood of Latvian business owners has become optimistic according to the newest Citadele Index survey, in which 750 Latvian business owners and leaders express their opinions on a quarterly basis. Experts explain the business owners’ improved mood with positive changes to both global and Baltic economies, new availability of structural funds, and tax reform.

The Citadele Index survey indicates that, in the first quarter of this year, manufacturers, construction business owners and service providers have crossed the threshold indicating an overall feeling of optimism; retail is the only category not to have crossed the optimism threshold. “Manufacturers and service providers are being positively affected by worldwide economic acceleration which helps to raise the volume of exports. The private sector has begun to use bank loans more actively, ensuring a good amount of work for those in construction. Furthermore, European Union structural funds will soon be available. Although worldwide retail spending has become more active, the comfort level of Latvian retailers is mainly dependent on internal spending and purchasing ability, where such fast changes are not yet happening,” explained Citadele economist Mārtiņš Āboliņš.

The overall improvement in mood is linked with anticipation of a better future, as respondents in general evaluated the next six months more optimistically. Āboliņš remarked that the anticipated improvements brought about by tax reforms have been another positive influence on the mood of business owners. Minister of Finance, Dana Reizniece-Ozola, explained the current progress in tax reform and emphasized that the government is doing this work in close partnership with social partners; this cooperation improves trust in the effectiveness of the reforms. “Social partners are not passive observers. The suggestions we receive from business organisations are taken into account so that tax reform becomes an instrument for stimulating investments, both by local businesses into their own development and by foreign investors. Latvia needs new businesses and new well-paid jobs to reach its goal of 5% annual economic growth,” stressed the Finance Minister.

The Citadele Index survey shows that the fastest improvement in mood has been in regard to the general economic situation in the country; at the same time, business owners’ assessment of their own financial situation is considerably more optimistic than in previous surveys. “We can also recognise the positive mood of business owners through loan data. Although the first quarter of any year is typically slower in the loans sector, the amount given out in loans by Citadele to businesses was 22% more this year than in the first quarter of last year. The second and third quarters of the year are normally more active than the beginning of the year in terms of loans, and we are currently seeing that increased activity,” stated Guntis Beļavskis, Citadele Chairman of the Board. Beļavskis accented that the bank’s most important task to help further the optimism of business owners is to ensure financial availability.

Regionally, the mood of business owners is most positive in Zemgale and in the suburbs of Riga. However, a significant improvement can also be observed in Latgale, where business owners traditionally have a more critical mood than elsewhere in Latvia.

Valters Bruss, a Zemgale farmer with 25 years of experience and the owner of the restaurant, hotel and brewery “Zoltners” in Tērvete, stated that the situation should be evaluated both as a whole and separately in each field. “In the next few years, farmers do not foresee significant growth in the price of the goods they produce, and they are looking guardedly towards larger investments. Hospitality service providers are more optimistic in hoping for general growth in prosperity and the ability of the general population to spend on accommodations and catering services. We cannot relax yet, but by working hard, carefully evaluating our priorities, and using financial services to invest in development, we believe in both our and the country’s joint growth,” said Bruss of the situation.

Citadele Index is a research program which Citadele has undertaken in Latvia since 2004. 750 business owners and leaders are surveyed each quarter, thereby providing a trustworthy, first-hand look into the economic state of the country, industries, and businesses as well as a prognosis for the next six months. The survey and data summary is provided by SKDS.

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