Survey: Baltic companies worry about material prices and geopolitical risks

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Large companies in the Baltic States view increasing raw material prices and geopolitical risks as the main challenges, according to the annual survey of large companies in the Baltic States conducted by SEB Bank, Latvian Radio reported on October 26.

According to SEB Bank Board member Ints Krasts, companies are prepared to continue investing, despite the difficult situation, at the same time looking for opportunities to cut costs.

The annual survey by SEB Bank aims to clarify the financial directors' forecasts for the business environment, the most significant challenges and development plans in difficult economic conditions. Approximately 300 financial directors of large companies in the Baltic have participated in the survey.

As explained by SEB Bank board member Ints Krasts, in a survey last year, the corporate sentiment was generally seen as positive, but this year it has deteriorated significantly and there are a number of reasons.

"There are a number of challenges to be juggled at the same time, such as inflation, rising energy prices, labor, supply chains, and all the geopolitical risks above it, and it certainly affects their overall mood. Given the weakening outlook for the economy, it is no surprise that the view of big company finance directors on business conditions for next year has deteriorated," Krasts said.

If 51% of respondents assessed the business environment positively and very positively in Latvia last year, this year the figure is 32% this year. The Bank said that it was interesting that the financial directors of Latvian companies expressed their financial situation most favorably from the Baltic States.

In the survey last year, as future risks, Baltic companies flagged repeated limits on the Covid-19 pandemic, a lack of skilled labor, as well as rising prices for goods and services. This year, on the other hand, the geopolitical situation is at the top of the risks in the Baltic.

In Estonia and Lithuania, concerns about geopolitics are in the first place, but in Latvia, companies rank this risk in the second place following the rise in prices of goods and services.

"This uncertainty, as the war continues and the geopolitical situation escalates, certainly has an impact on decision-making. The decision-making requires certainty and understanding, if there is none, then decisions are postponed, so the geopolitical risk is actually in the first place this year,” said Krasts.

Despite concerns and risks, representatives of large companies in the Baltic have indicated in the survey that they still have a willingness to invest and investment plans will not change, even despite changes in interest rates. The majority of the Lithuanian companies surveyed indicated continuing investment as a priority for next year, while the majority of the surveyed Estonian companies indicated that they will have a focus on digitization, automation, and innovation next year.

Also in Latvia, as in Estonia, companies have mentioned the focus on the three fields mentioned above as the priority of next year. But it will be almost equally important for them to cut costs. Also in Lithuania and Estonia, cost reduction is among the top 3 priorities.

“It just points out that companies will look for ways to make efficiency and do everything to improve the financial situation and, if necessary, go to financial resources to ensure unpredictability and what shocks,” said Krasts.

He noted that the most concerned about the future are companies that deal with production and consume energy resources. These are those companies that expect support from the institutions and also from the banks.

Inflation forecasts in Latvia show the most pessimistic mood in the Baltic, with most Latvian company finance directors expecting inflation to be between 10% and 12% over the next year.

A number of questions have also been raised in the survey on environmental impacts. In Latvia and Estonia, companies are most likely to invest in measuring CO2 footprints over the next year, while in Lithuania, in establishing and implementing a sustainable strategy.

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