Our comprehensive assessment of Latvia's operating environment and the outlook for its leading sectors are formed by bringing together a wealth of data on global markets that affect Latvia, as well as the latest industry developments that could impact Latvia's industries. This unique integrated approach has given us an impeccable track-record for predicting important shifts in the markets, ensuring you’re aware of the latest market opportunities and risks in Latvia before your competitors.
Latvia Country Risk
Latvia's economic recovery will continue into 2014 and beyond, although we emphasize that strong headline real GDP growth is largely a result of statistical base effects. We see growing scope for the government to ease up on its long-held policy of fiscal austerity going forward.
We anticipate the moderation in consumer prices in Latvia toÂ pick up slightly in 2014. We forecast inflation to average 1.0% in 2013 and 1.6% in 2014.
Major Forecast Changes
We have downgraded our forecast for Latvia's real GDP growth to 1.9%, from 3.8% previously as the escalating trade war between the EU and Russia is adversely affecting Latvia's goods and services export prospects.
We now forecast Latvia to grow by just 1.9% in 2014 and 3.4% in 2015, from a...
Latvia Industry Coverage (11)
BMI forecasts a 1.4% drop in total vehicle sales in 2013, despite an expected uptick in the passenger car segment, on the back of our bearish outlook for commercial vehicles (CVs). In 2014, we forecast a 4.2% increase in vehicle sales as the industry shows signs of resurgence.
Despite our initially bearish outlook on the segment, we now expect to see a resurgence in Latvia's passenger car segment. Indeed, on the back of recent growth, lower base effects, and a pick-up in broader measures of retail spending, we now expect to see 3% growth in passenger car sales in 2013.
BMI maintains a generally bearish outlook on the commercial vehicle (CV) segment in Latvia. Industrial production has remained fairly weak throughout 2013, and tepid external demand has weighed on broader measures of economic growth. We believe that this, combined with high base effects from strong sales...
Food & Drink
Latvia Food & Drink
BMI View: We remain relatively sanguine about the near-t erm consumer outlook in Latvia and believe that the improving economic outlook could entice back some of the estimated 12% of the population that has emigrated over the past decade, creating upside risks to our forecast s . However, falling population numbers still mean subdued longer-term commercial prospects.
Headline Industry Data (local currency)
2014 per capita food consumption: +3.2%; forecast compound annual growth rate (CAGR) to 2017: +3.2%
2014 alcoholic drinks sales: -0.3%; forecast CAGR to 2017: +3.0%
2014 soft drinks sales: +3.3%; forecast CAGR to 2017: +3.2%...
Latvia Freight Transport
We retain our reasonably positive outlook towards Latvia's external accounts. While some longer-term challenges do remain in play, Latvia's current account deficit remains one of the smallest in the EU, and we believe that an increasingly dominant services account surplus will help to offset any future weakness from the trade deficit.
We have revised up our forecasts for the current account deficit, which we expect to be 1.5% of GDP in 2013 and 1.2% of GDP in 2014. Latvia's accession to the eurozone in January 2014 is not expected to have a major impact on the current account, although a slight acceleration in exports might be experienced as a result due to reduced transactional costs.
In Q213, the current account posted a surplus equivalent to 0.8% of GDP, driven primarily by a decline in commodity imports, although we expect the current account to slip back into deficit in the second half of the year. The trade...
BMI View: Although economic fundamentals in Latvia remain fairly supportive, we see only modest opportunities for growth in the country's construction sector. We anticipate industry growth to slow over the forecast period , with average year-on-year (y-o-y) growth of 4.8% expected between 2014 and 2023. The residential and non-residential construction sector will gradually regain its dominance in the overall industry at the expense on the infrastructure sub-segment, which will struggle with limited funding....
BMI View : The life segment, despite being smaller than the non-life segment and facing the challenge of low affordability at present, will outperform over the coming years as it grows from a low base and benefits from Latvia's introduction into the Euro. While the non-life segment will retain its majority of the insurance market in 2018, its share will decline from 88.1% currently to 86.0% by 2018.
The non-life sector accounts for the majority of Latvia's insurance market with a share of 88.1%. Furthermore, with a density of USD197 per capita, the country's non-life sector can be considered to be rather well-developed. The density is second among the Baltic states after Estonia and ahead of a major market such as China, which has a non-life insurance density of USD140 per capita. However, despite its large size with regards to the total sector, Latvia's non-life segment like many other...
Latvia Medical Devices
Espicom Industry View: The Latvian medical device market is expec ted to increase by a C AGR of 4.0 % in US dollar terms over the 201 3-2018 period, reaching US$182.3mn, or US$91 per capita. Domestic production is expected to remain geared towards satisfying the local market, and for export to other former USSR countries, as the technological sophistication of locally-produced medical devices does not yet match that in the West.
Headline Industry Forecasts
The medical equipment market grew strongly until 2008, but fell sharply in 2009 and again to a lesser extent in 2012, as the country's ability to import goods fell. It was...
Pharmaceuticals & Healthcare
Latvia Pharmaceuticals & Healthcare
BMI View: Â Latvia's macroeconomic environment continues to improve at the same time as smooth transitions to a new currency and new Prime Minister. Market growth forecasts are strong although the country will continue to present a modest opportunity to larger multinational companies on account of its relatively small market size. Meanwhile, tensions between Ukraine and Russia may provide challenges for local manufacturers looking towards exports to Russia to boost revenue .
Headline Expenditure Projections
Pharmaceuticals:Â EUR325mn (USD429mn) in 2013 to EUR341mn (USD458mn) in 2014; +5.0% in local currency terms and +6.6% in US dollar terms.
Healthcare:Â EUR0.94bn (USD1.24bn) in 2013 to EUR0.98bn (USD1.32bn...
The port of Riga, which holds the top position in Latvia's maritime sector in terms of both total tonnage and container throughput, is set to post growth in 2014, with increases forecast both in total cargo and box volumes.Â
Riga has a strong position to build on in 2014 in terms of box throughput, enhanced by robust increase in volumes over the last four years, and in terms of tonnage throughput, which demonstrated strong growth at the beginning of the year.
Over the medium term, we project further throughput growth at the port of Riga and tonnage throughput growth at Ventspils, the country's second largest port in terms of the total throughput, which will try to resume recovery to its pre-downturn tonnage levels.Â
Headline Industry Data
2014 port of Riga tonnage throughput forecast to grow 15%; over the medium term we project a 22%...
BMI View : Latvia slipped several places down BMI 's Risk/Rewards Ratings table for the Central and Eastern European telecommunications sector. There are numerous reasons for this, but the most significant include saturation of the mobile market, a non-competitive fixed-line voice and broadband market, low consumer spending with regards to services including telecoms and TV and the continued reluctance on the part of the government to distance itself both from the primary legislator and the leading service provider. There are opportunities to be exploited, in particular growing interest in multi-play services and the recent merger of Baltcom and Izzi Group could yet lead to the long-awaited creation of a dynamic rival to incumbent ...
BMI View: Â Overall we maintain our outlooks for the Baltic states' tourism sectors over 2015. Although the countries stand to lose out due to the ongoing issues (both economic and political) arising from the Russia-Ukraine tensions, and this will constrain arrivals from these countries, we believe that these losses will largely be mitigated by increased inter-regional tourism within the three Baltic states, as well as from other European countries which increasingly view the Baltic region as a more stable alternative to Russia and Ukraine. In particular we feel that Lithuania's tourism sector could see substantial growth over the longer term if its bid to join the euro is successful, as it will facilitate multilateral tourist traffic from and to the eurozone . Â
One of the main developments over 2014 has been the advancement of the proposal to...