SEB survey results: cautious optimism about business growth
The largest companies in Latvia and Lithuania are once again somewhat more optimistic about their business growth. After a rather pessimistic outlook for development in 2022, the situation has improved this year, according to SEB survey of the CFOs of large Baltic companies*. The business world in Estonia is much more cautious about development prospects. The development of the global economy was identified as the biggest challenge in all Baltic states.
“Having analysed businesspeople’s views on the business environment and development opportunities, two aspects are highlighted - an optimistic view of their growth opportunities and concern about global economic developments. Our development opportunities are influenced by global events, and some entrepreneurs have obviously reassured themselves that they are able to deal with major challenges and difficulties. In this way, you can maintain confidence in the future. The differences between the views of Baltic businesspeople can be explained by the structure of the economy and the different trading partners. A common characteristic of businesses in the Baltic states is their ability to adapt to change even in unusual circumstances, which enables them to compete well in Europe and globally,” SEB board member Ints Krasts points out.
Different perspectives on business development, a united perspective on rising demand
While optimism in Latvia and Lithuania has increased this year compared to last year’s very cautious assessment of the business environment, the opposite trend can be observed in Estonia – around a third (34%) of company CFOs are more pessimistic about the development opportunities for the coming year. 39% of survey participants in Latvia (up 7 percentage points compared to 2022) and 51% in Lithuania (up 25 percentage points) were confident about growth opportunities in the coming year. In Estonia, only 25% of respondents gave a positive assessment (down 14 percentage points).
A similar picture emerges in the assessment of the financial position of their companies (compared to 2022). Almost 80% of respondents in Latvia and Lithuania described it as stable or very stable, while only 60% of respondents in Estonia said the same.
In terms of expected demand for the company’s goods and services, the Lithuanian businesspeople were the most optimistic – 33% believe that demand will increase in the future (up 9 pp compared to 2022. In Latvia and Estonia, 18% of corporate finance directors expected an increase in demand, while in all Baltic states, the number of outright skeptics had decreased
Concerns about global developments
Global economic prospects are among the main concerns of CFOs when considering the near future (more than half of all company representatives in Baltic states emphasised this). Other key factors are geopolitical risks and decline in demand (for respondents in Latvia) and the expected pressure on profits and prices (for respondents in Lithuania and Estonia).
A large part of the mood and expectations of companies is reflected in current developments, for example, the answers to the question of the surplus of funds held by companies showed that higher interest rates have led to faster debt reduction. True, in contrast to Lithuania and Estonia where willingness to reduce debt increased by 10 percentage points (compared to 2022), in Latvia this increase was only 1 percentage point. In Latvia, a greater number of companies are planning to invest surplus funds in development.
It was observed, however, that most entrepreneurs (69% in Latvia, 65% in Estonia, and 54% in Lithuania) have not had to adjust their investment plans as a result of the increase in interest rates. At the same time, around a third of entrepreneurs in the Baltic states state that the rise in interest rates has led to a decline in investment plans.
Distinctly different priorities
The situation in the individual Baltic states has historically differed in terms of businesspeople’ priorities and expectations for the coming year. In contrast to Lithuanian entrepreneurs, who focus on increasing business capacity (29% of respondents have prioritised this), entrepreneurs in Latvia have consistently prioritised the introduction of new products and services, which this year was coupled with a desire for digitalisation and automation in the company and investment in innovation (priority for 26% of entrepreneurs). In contrast, Estonian entrepreneurs, for whom digitalisation and automation have always been a top priority, now see increasing cash flow (27%) as their most urgent task.
*Once a year, SEB conducts a survey among the CFOs of the largest companies in the Baltic States and asks them to share their views on the business environment, the biggest challenges, and other issues. The survey was conducted in September 2023 and included 277 companies from Latvia, Lithuania, and Estonia with an annual turnover of over EUR 20 million. SEB has been conducting such a survey since 2014.