OREANDA-NEWS. August 27, 2013. Latvia’s economy has posted the highest gains on an annual basis in the entire European Union this year, but the mood of Latvian entrepreneurs is not moving toward consistent optimism. In fact, the value of the Citadele Index during the second quarter of this year fell by 0.59 points to 52.36 points. The study is conducted by the Citadele Bank in partnership with the SKDS market and public opinion research centre.

Moderate optimism is seen among the country’s entrepreneurs, and the value of the Citadele Index has been above 50 points ever since the first quarter of 2012. At the same time, however, the value has shifted, and there has not been a consistent increase in optimism. Those who took part in the Q2 study this year were quite cautious about evaluating the present situation – 50.83 points, with the future index slipping from 56.74 to 53.89 points.

When the index is above 50 points, that illustrates optimism among entrepreneurs, while when it is below 50 points, there is reason to speak about pessimism.

The Citadele Index is made up of eight sub-indices, and there was a drop in all of them except for what entrepreneurs think about investments at their companies – there the index found an increase of 0.97 points. Optimism among entrepreneurs has largely shrunk in relation to indices which address the financial situation of their companies – the sub-index related to profitability has declined by 1.52 points, the one referring to the company’s financial situation shrank by 1.25 points, and the sub-index speaking to corporate revenues has dropped by 1.18 points.

It may be that the cautious optimism that is seen here relates to events not just in Europe, but also in eastern markets.

“We are seeing signs of economic stabilisation in Europe at this time, with durable improvements in mood indices in the area of manufacturing, as well as in actual industrial data,” says the Citadele Bank’s senior economist, Zigurds Vaikulis. “During the second quarter of this year, GDP in the European Union demonstrated growth for the first time in nearly two years. Experts are increasingly certain in arguing that the nadir of the economic crisis in Europe is now in the past. An end to the European recession would also mean lesser external risks for Latvia’s economy. At the same time, though, it is too early to talk about an entire disappearance of external risks, because while our trading partners have found a new foundation for their work, the economic pulse in countries to the East of Latvia has been growing weaker. Growth in Russia has all but ground to a halt, and it is slowing down in China, as well.”

Russia and China are the largest export markets for the bath and body cosmetics company STENDERS. “At this time we have 228 shops in 23 countries, and our biggest markets are specifically in China and Russia,” says the company’s financial director, Rolands Pupkevics. “We have 90 and 63 stores there respectively, and since the beginning of 2012, we have nearly doubled the number of outlets in China. We saw a decline in revenues in Latvia this past spring in comparison to the previous year, but since July we have witnessed growth of approximately 5%. Thanks to success in export markets, STENDERS earned revenues of EUR 12.2 million from its outlets during first six months of this year, and that was 21% more than during the first half of the previous year.”

The value of the index has declined in most sectors of the economy, as well – down by 1.0 point in the service sector, 0.9 points in the retail sector, and 0.3 points in the manufacturing sector. The construction industry is the only one in which the index is up – 2.1%, which speaks to the specifically seasonal nature of this sector.

Compared to the first quarter study, the index this time shows lower optimism among businesspeople in Riga (-0.5 points) and in the countryside (-1.3 points). It is interesting that for the first time since 2007, businesspeople in Latgale have preserved moderate optimism for a second quarter in a row, with the value of the index remaining unchanged at a level of 50.5 points. The value rose by 0.1 points in Kurzeme, but declined elsewhere – down by 0.1 points in Zemgale, 0.5 points in Riga, 1.3 points in Vidzeme, and 1.5 points in the Riga metropolitan area.
The index also looked at the views of people at companies with various numbers of employees, with only those at firms with between 50 and 249 workers showing an increase – 1.4 points. In terms of corporate revenues, the only segment in which there was an increase in optimism was the one in which the relevant company earned revenues of between LVL 250,000 and LVL 1 million during the last fiscal year.

The Citadele Bank and SKDS research centre conducted the survey in June 2013, correlating answers given by 750 managers from Latvian companies of various sectors and various sizes.