A feverish tide of events swept through the third decade of this century, and then, as the world began to breathe again after the Covid disaster, another onslaught followed - Russian aggression in Ukraine, which resulted in a protracted war with devastating economic, social, and environmental consequences. A cursory look back at the last few years may even seem like "lost time" to some, due in part to the fact that opportunities were not utilized, as enormous energy was expended in overcoming adversities, crises, and misfortunes. It might not be the case, however, as each of these huge challenges has taught us something valuable. Covid raised the level of our ability to fight pandemics qualitatively, which changed nations' attitudes toward health and forced us to devise comprehensive and quick digital solutions for services. Russia's aggression strengthened the unity of Europe and NATO partners, the war forced countries to reconsider the meaning of freedom and democracy, and it has profoundly changed how nations approach energy security. While these were (and still are) extremely costly lessons, it would be incorrect to disregard this time as wasted.
Weather forecasts and the development of economy
With the Covid pandemic contained and restrictions lifted, the economy began to grow this spring: mergers and acquisitions picked up, reflecting a return of confidence among investors, property prices soared, and overall consumer spending also increased. Fast forward eight months, we live in a completely different reality, where economists are skeptical about future scenarios, national governments are worried about the availability and cost of energy, and unprecedented inflation is forcing people into survival mode this winter and next spring. The coldest months of winter are yet to come, and they will have a decisive impact on the future of the economy. A significant part of the future of the economy can therefore be predicted by studying, among other things, long-term weather forecasts.
A cold winter is likely to result in Europe depleting its gas stocks to a significant extent (which will result in higher energy prices). Conversely, a warm winter will allow us to spend less on energy, and gas demand for the 2023 heating season will be lower, reducing the impact of energy on the overall inflation rate. Ultimately, Latvia and Europe must find new ways to produce energy, especially from renewable sources, to end their dependence on Russian energy and fossil fuels.
A key factor in competitiveness is sustainability
In spite of the war, Europe's ambitious climate goals remain unaffected: the implementation of the European Green Deal will not proceed as rapidly as anticipated, but it remains a priority in the transport, agriculture, forestry, energy, and manufacturing sectors. For the future development of the economy and society, sustainability will be an important factor, as changes in our mindset and conduct will have a significant impact on the quality of our lives.
Engagement of businesses and social activism is key to creating a more sustainable society and climate. Thus, SEB Group is committed to its sustainability strategy goals and aims to serve as a catalyst for sustainable growth. Through our sustainability strategy, we will provide funding for both green business projects and green transformation projects and increase our advisory services.
It is a time of tremendous changes and opportunities. Covid has encouraged us to use new digital solutions, while the energy crisis demands that we use renewable energy sources in order to obtain energy. Although solar panels and wind farms are important and valuable, I would like to believe that they will not be the sole solution to the current energy challenges. It is those who continue to invest in research and development or who are able to quickly adapt and use existing innovations who will succeed. There will be mistakes made here and there, and technology may come a little too early, but what matters most is that we remain active and look for new opportunities.
Time of interest rates
Interest rates are among the highlights of 2022. From inflation and GDP figures to interest rates and investment returns of various kinds. How can one stay ahead of inflation and preserve the value of savings? What will interbank interest rates be? How will the stock market change and how will this affect retirement savings? The practice of discussing these and similar questions is becoming commonplace not only among financiers and entrepreneurs but also among friends and family members. The topic of interest rates has become a hot topic throughout society. The financial sector, therefore, has a special responsibility to explain adequately and reasonably what is happening to our savings, our borrowings, the value of money now and in the future, and why.
An important lesson was related to the falling stock markets, which is bad news, on the one hand, because the value of the securities previously bought falls and a rare opportunity, on the other hand. In the last fifty years, it has happened just seven times that prices have “declined” by more than 20% from their highs. Therefore, this is the seventh best time in the last half-century to look. On the other hand, I agree with the pessimists who point out that the stock market has not been able to recover and reach its previous levels for a long period of time. Of course, there is no doubt that investing involves a certain amount of risk, and no investment expert will ever be able to predict with absolute accuracy the future development of the stock markets.
By the way, in recent months, most economies have shown an unexpectedly high degree of resilience to rising interest rates and inflation, while keeping unemployment rates low. It should be noted that households continue to spend money on consumption patterns that were “blocked” during the Covid pandemic, including using their savings. Even though we forecast marginally positive GDP growth for 2023 as a whole, i.e., slightly above the zero line, it is important to keep in mind that the Baltic economies are heading for a recession. One of the biggest threats to household purchasing power comes from high inflation rates. The overall performance of the economy will be determined by the depth of the economic downturn at the beginning of the year and the potential for a recovery in the second half of the year.
We will keep fighting for freedom
All of these rapid changes and the hallmarks of 2022 can be traced to the joint struggle of Europe, the United States, and other regions of the world against Russia's unprovoked, brutal aggression against Ukraine. As well as providing military and financial support to Ukraine, we have imposed massive economic sanctions on Russia and Belarus. Apart from reducing Russia's revenues, Europe has committed to ending decades of energy dependence. While many brands and companies have stopped doing business in Russia, those that remain will face serious reputational hazards and other challenges. As a result of the sanctions, the Russian economy will face serious challenges eventually.
In 2023, given the price of this issue, we will need to prove to ourselves repeatedly that freedom is the greatest value, even if it entails giving up something or altering our daily routines. It is only by maintaining freedom and, especially, by providing unwavering support for Ukraine that we will be able to address other issues, such as sustainability, reducing inflation, the Latvian language, labour market, exportability, healthcare, and education.
Ieva Tetere
Chairwoman of the Board of SEB
