OREANDA-NEWS. January 21, 2007. When assessing the prospects for economic development in Latvia, entrepreneurs have rated 2007 as the least favourable year since the establishment of the business activity index, Parex Index, in 2004. During the year the index decreased sharply by almost 9 points to 51,93 points, and nearly reached the 50 point barrier, which is regarded as the mark for negative evaluation, reported the press-centre of Parex.

The review shows that the index's value constantly decreased over the course of the year, the first time in the index's history. Furthermore, the businessmen who participate in the review are convinced that 2008 will also be challenging as the present index, at 51,22 points (-2,61), and the future index, at 52,65 points (-2,26), are at their lowest levels since 2004.

From eight sub-indices (assessment of overall economic activity, economic activity of the sector, competition, enterprise's turnover, profitability, financial positions, number of employees, and volume of investments) the assessment of overall economic activity has dropped to 45,24 points, the lowest position of all sub-indices since 2004. This contrasts to the assessment last year, when the overall economic activity sub-index reached the highest position for two quarters in a row, peaking at 64,32 points in the last quarter of 2006. Since then it had experienced a continuous quarter-on-quarter decline.

In the last quarter of 2007 the sub-index of economic activity of the sector dipped below the 50 points level to 49,65 points, which is in itself distinctive as this ratio was relatively stable in previous years, consistently above the 60 points mark. Throughout the year, since the last quarter of 2006, the sub-index of economic activity of the sector has decreased by 13,47 points, including the fall by 4,9 points in the last quarter.

The only sub-index to show growth in the last quarter was the competition assessment sub-index (+1,77), reaching 57,58 points. Entrepreneurs' evaluation gives grounds for conclusion that the decrease in state and sector economic activity might result in competition growth among current entrepreneurs.

Out of 26 groups of entrepreneurs that participated in the survey, only two have shown index increase in the last quarter: large enterprises with over 250 employees (+1,25) and Zemgale region entrepreneurs (+1,03). In turn, entrepreneurs from rural areas have seen the most dramatic fall in the index (-7,03).

Evaluating entrepreneurs by sectors, construction field employees have experienced the most negative tendency: index value in the last quarter decreased by 3,50 points and yearly average by 11,1 points, sliding to 50,38 points. Moreover, despite the 2,34 points decrease, trading sector employees have shown the most confidence among all, with a general index value of 52,88 points.

Unexpected evaluation changes are viewed by looking at companies by capital origin. Foreign capital enterprises have lost their former leading positions. In the third quarter of 2007, for the first time in Parex index history, foreign capital enterprise fell below the evaluation of foreign and domestic capital enterprises. Moreover, they also lost ground to domestic capital enterprises, decreasing by 6,56 points in the third quarter to 50,64 points. On average, the yearly decrease of foreign capital enterprises assessment has comprised 14,44 points. In addition, these companies currently show much pessimism in regards to state general economic activity – only 37,08 points (-10,88).

About Parex index
The first business activity index in Latvia - Parex Index – was established at the beginning of 2004 by Parex banka in cooperation with SKDS, the leading centre of market and public opinion research. The main purpose of the research is to establish a single index, which describes Latvian entrepreneurs subjective appraisal of the economic situation of the State. The index is calculated based on the poll and the analysis of the opinions of 750 Latvian businesses of different size and from different industries.

The index reflects the opinion and the forecasts of the business community on the level of economic activity of the country and in their particular industry, as well as an evaluation of different indicators of company operations, such as profitability, turnover, financial position, number of staff, and investment level. If the index value exceeds 50 points, this is an indicator of certain level of optimism regarding the issue; in turn, the value below 50 points depicts pessimism.