Economic growth rates are pleasing, but mood of entrepreneurs does not see improvements

In 2017 economic growth in all three Baltic States exceeded all expectations, and positive tendencies will dominate in 2018 and 2019 as well. However, the share of small and medium-sized companies in Latvia expecting a significant turnover increase this year, has not grown substantially.

In 2017 economic growth in all three Baltic States exceeded all expectations, and experts are certain that positive tendencies will dominate in 2018 and 2019 as well. However, a survey done by SEB bank indicates that the share of small and medium-sized companies in Latvia expecting a significant turnover increase this year, has not grown substantially. On the other hand, the proportion of pessimistically-minded companies has dropped.

9% of polled small and medium-sized companies in Latvia expect their turnover to increase by more than 15% during this year, while a year ago 8% of companies had such expectations. Meanwhile, the share of pessimists is still much more pronounced: 23% of respondents have answered that they anticipate a drop in their turnover. In the previous year 26% of SMEs shared this opinion.

Similar trends can be seen in neighbouring countries as well. 13% of SMEs in Lithuania and Estonia expect an increase in their turnover. However, 28% of Estonian SMEs and 20% of SMEs in Lithuania expect a drop in turnover this year, and the share of pessimists in Lithuania has even slightly gone up since the last year.

Arnis Škapars, board member of SEB Latvia: “Small and medium sized companies sharply feel the challenges our economies are facing. Lack of workforce and decreasing numbers of potential customers due to demographic trends, fierce competition and emergence of disruptive technologies are just some of the challenges, which are setting the cautious mood in SME segment. Survey results indicate that SMEs haven't tasted the fruits of economic growth just yet.”

The lowest share of optimists in Latvia is recorded in public administration and services industry (4%) and agriculture (6%). Meanwhile, manufacturing industry has the highest share of optimists – 17%. Highest share of pessimists is observed in trade industry (28%) and agriculture (24%). Housing and catering industry is the most stable with only 9% of pessimists and 76% expecting stable turnover.

"In conditions of intense competition, success is largely determined by how well is an entrepreneur able to define the uniqueness of his company, setting it apart from tens of other companies. Unideniably, companies who excel at knowing the wishes and needs of their clients, companies, which are eager to follow the trends and adapt, and, most importantly, create their own distinctive sign against the common backdrop, will succeed the most.  Experience of Narvesen shows that the joy of work of everyone in the company translates directly into profits. Therefore a positive and optimistic outlook is crucially important for developing our business," says Katrīne Judovica, CEO of retail franchise network Narvesen.

Baltic Business Outlook is an annual survey by SEB bank, establishing expectations of Baltic small and medium-sized companies in five areas: changes in turnover, number of employees, exports, innovations and investment. Baltic Business Outlook 2018 encompasses answers by 4270 small and medium-sized businesses across Baltic States, including almost 2000 Latvian companies. The survey was done in December of 2017 and January of 2018.