The first three months of 2015 were the fourth quarter in a row for the Latvian entrepreneurs' sentiment to be pessimistic, and Citadele Index value was lower than 50, dropping to 48.65 points. Latvian economy's slow growth influences entrepreneurs' sentiment.
Compared to 4Q 2014, Citadele Index value has changed insignificantly: it has increased by 0.14 points; it still speaks volumes of entrepreneurs' pessimistic sentiment since it is below 50.
However, entrepreneurs are optimistic about the future, and the future value of Citadele index was 52.31 points during this quarter. The present index value is 44.99 points. The present index reflects entrepreneurs' opinion about the current situation whereas the future index is a forecast for the next six months.
Arnis Kaktiņš, Head of the market and public opinion research centre SKDS: "The present index value decreased significantly, i.e. by 2.69 points, during the first quarter of 2015 whereas the future index value has increased by 2.98 points, thus exceeding the 50-point threshold. The most recent Citadele Index present value shows that, according to business people, the situation has deteriorated during the past six months; but the future index value indicates to their optimism regarding the next half year. However, I must add that for the last four years the present index value decreased and the future index value increased during the first quarter of the year."
Simona Striževska, Economist at CBL Asset Management: "Latvian economy has switched to slower speed since the beginning of 2014. In comparatively slow economic growth and low inflation conditions, the amount of money at entrepreneurs' disposition correspondingly increases at a much slower pace. Economic output in terms of cash is currently increasing by 2.5–3.0% per year, which, except for crisis episodes, is close to its all-time lowest. This correlates with the entrepreneurs' comparatively pessimistic sentiment regarding the economic activity in our country during the past quarters."
Analysis of the 1Q 2015 index value in various enterprise groups shows that only largest enterprises (according to turnover and the number of employees) and foreign capital companies exceed the 50-point threshold, thus indicating positive sentiment.
Similarly to the last two quarters of 2014, the index value did not exceed the 50-point threshold in any of the regions, however it was close to optimistic in several regions. Citadele Index value was 49.74 in Riga, 49.48 in the outskirts of Riga, 49.27 in Kurzeme and Zemgale, and 27.40 in Vidzeme. Unfortunately, the index in Latgale traditionally is significantly lower – 40.51 points.
In 1Q 2015 Citadele Index among exporters has increased by 1.17 points (reaching 49.95) compared to 4Q 2014. Conversely, the index has slightly dropped to 48.15 among non-exporting companies.
"The Latvian economy arrived at crossroads in the beginning of this year. In some sectors, one could feel the cold breath of Russia's recession whereas economic recovery processes in the Eurozone have not manifested themselves in the Latvian economy's growth indicators yet. Although the Russian economy has apparently not recovered from its deepest dipping point, awareness of our Eastern neighbour's scope of difficulties is gradually increasing, and this factor is losing its negative surprise effect. Meanwhile, as the Eurozone's economy is recovering, a slightly more positive situation might evolve in Latvian exports in the second half of this year. Our opinion is that internal consumption will most likely be facilitated by moderate increase in people's income, lower energy costs and savings on interest rate payments thanks to the unprecedented low interest rate environment in Europe,” comments Simona Striževska.
Analysis of Citadele Index values in different fields of business shows that, similarly to 3Q and 4Q 2014, index values were lower than 50 in all economic sectors during 1Q 2015. A comparatively lower index value was observed in construction (43.79 points) whereas values in all other sectors are higher: 49.35 in manufacturing, 48.97 in trade, and 48.87 in services. Citadele Index value in the construction sector has been lower than the optimist threshold for the past four quarters in a row.
Māris Saukāns, Chairman of RBSSKALS Supervisory Board: "We must learn to set priorities and goals, and determine standards and strategies in the Latvian construction sector. It is possible to combine quality, sustainability, modern technologies and construction intellectualism, and this does not immediately mean high construction prices. This means constructing correctly for the right price. The two proposal principle should be introduced which means firstly assessing the technical proposal and, if it complies with all criteria and qualification requirements, price proposals should be evaluated afterwards. Additionally, we should duly plan what to do after 2020, which is the final year of EU fund acquisition. If things continue the way they are now and projects are drafted at the last moment, then implementation and procurements will also be carried out in a haste. Hasty construction bears quality risks, potentially unacquired or non-eligible sums of money and other problems that the sector is already unsuccessfully struggling with.”