A regular survey conducted by SEB bank covering large companies in the three Baltic countries shows that confidence in the economic outlook is at a low point in Estonia, trailing behind both Lithuania and Latvia, Peep Jalakas, head of corporate banking at SEB, has said.
The survey describes how more than 300 large companies view the next 12 months. In the first half of the year, there were twice as many optimists in Lithuania as in Estonia, with Latvia falling somewhere in between, Peep Jalakas said.
Jalakas acknowledged that the broad tax increases, along with the prolonged discussion about new taxes in Estonia, was one of the reasons for the negative outlook.
“Business leaders dislike uncertainty and not knowing what to expect in the future,” Jalakas said. “Lithuania has not experienced such widespread tax increases and the tax environment there has been more stable.”
Lithuania’s economy grew by 2% in the first half of the year, while Estonia’s economy was in decline during the same period.
Compared to 2021, the optimism of chief financial officers at large Estonian companies has halved.
Jalakas also pointed out some signs of improvement in the survey.
“The lowest point was in the first half of the year. The survey indicates that optimism has slightly recovered. The proportion of negative assessments has decreased,” he said.
As for Lithuania’s relatively better position, Jalakas attributed it to Estonia’s focus on exporting to Scandinavia, particularly in connection with the real estate and construction sectors, while Lithuania had been more oriented toward Poland and Western Europe.
Additionally, the impact of interest rates on the economy was more negative in Estonia than in Latvia and Lithuania, he added.
According to the survey, 29% of respondents in Estonia currently feel confident in the business environment (up from 25% last year). In contrast, 58% of chief financial officers at large companies in Lithuania are optimistic about the future, exactly double the figure in Estonia (51% last year). The figure in Latvia has remained unchanged at 40% YoY.
According to SEB’s forecast, Estonia’s economic growth is expected to recover in 2025, with the economy potentially growing by 2.5%, which is comparable to the growth projections for Latvia and Lithuania. However, Estonia’s growth will come from a significantly lower base, as Lithuania’s economy grew by 2.4% in the first six months of this year and Latvia’s by 0.3%, while Estonia saw a decline of 1.6% YoY, Jalakas explained.
The greatest concern for companies in both Estonia and Latvia is the future of the economy, with 65% and 61% of survey respondents, respectively, sharing this view. In Estonia, the next major concerns are pressure on profits and prices (62%), geopolitical risks (54%) and rising labor costs (42%).
In Lithuania, only 36% of large companies see economic prospects as their main concern, a significant drop from 51% last year. Instead, the main worries in Lithuania are geopolitical risks and rising labor costs, both mentioned by half of the respondents. The survey also revealed that 46% of large Lithuanian companies were facing a shortage of skilled workers, compared to just 16% in Estonia.
The survey found that Latvian and Lithuanian chief financial officers are the most satisfied with their companies’ financial situation, with 77% and 72%, respectively, rating it as very favorable or favorable. In Estonia, only 52% view their financial position positively, the lowest figure since the SEB survey began in 2014.
Moreover, the proportion of Estonian companies that consider their financial situation to be challenging has risen significantly, with 15% now expressing this view, compared to just 6% a year ago.
“This is partly logical, given that the economic downturn in Estonia has persisted for more than two years and some companies’ financial buffers are beginning to deplete. At the same time, if we look at the statistics, the quality of banks’ loan portfolios remains good, the volume of business loans is increasing and the number of bankruptcies and restructurings remains low,” Jalakas said.
SEB’s annual large companies CFO survey took place in September. A total of 302 chief financial officers from large companies across the Baltic States responded to the survey: 85 in Estonia, 110 in Latvia and 107 in Lithuania. The participating companies typically have an annual turnover exceeding EUR 20 million. (ERR)