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 2015 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.
The Russian embargo on EU agricultural goods has weakened the growth outlook and Latvia will be among the worst EU states affected.
Growth will remain subdued due to the need for further deleveraging.
Major Forecast Changes
We have downgraded our forecast for Latvia's real GDP growth 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 2.1% in 2014 and 2...
Latvia Industry Coverage (11)
2014 has proved a positive year for new vehicle sales within Latvia. Over the first nine months of the year, passenger car (PC) sales were up by 19% year-on-year (y-o-y), at 9,239 units, according to figures from the European Auto Manufacturers Association (ACEA).
On the commercial vehicle side, 8M14 figures from ACEA show a total of 1,658 light commercial vehicles (LCVs) sold in country, with a further 754 medium and heavy commercial vehicles sold, plus a further 137 buses, for a total of 2,549 units sold year-to-date.
Adding the 2,549 CV units to the 8,445 PCs sold over 8M14 makes for a total new vehicle market of 10,994 units. On current sales trends, this leaves the Latvian new vehicle sales market on target to hit BMI's forecast of 16,384 units for the full year.
Looking forward, BMI's Country Risk team believes that the ongoing sanctions being...
Food & Drink
Latvia Food & Drink
BMI View: We expect that household consumption will remain stable over 2015, contributing 1.7 percentage points to headline real GDP,. This will be supported by low inflation and an improving labour market. However, the deterioration in EU-Russia relations is adversely affecting Latvia's economic growth outlook. Western sanctions on Russia have led to capital flight and sharp depreciation of the rouble against the dollar, which has markedly worsened the growth outlook for Russia (which remains one of Latvia's most important trading partners). Russia's retaliatory embargo on EU agricultural goods will also leave Latvia among the worst affected, as Latvian agricultural exports to Russia account for almost 3% of total exports.
Headline Industry Data (local currency)
Latvia Freight Transport
Latvia's freight industry is inconveniently poised to feel the effects of the deterioration in trade relations between the EU and the Russian Federation. While on aggregate sanctions put in place by the West have not significantly affected the EU's growth outlook, they have hit Latvia hard. Russia is one of Latvia's largest trading partners, accounting for 10% of total exports, and both the visible goods and services trade is suffering as a direct result.
Nonetheless, tensions appear to have reached a plateau for the time being, with the EU opting not to enact any further sanctions on Russia in November, while Russia and Ukraine reached a deal which should lead to the resumption of gas supplies to Ukraine. This suggests that the risk of worst-case scenario for Latvia's banking sector, involving an intensification of capital and financial market sanctions on Russian assets, has declined slightly.
In 2015, growth across...
BMI View: On the back of deteriorating relations between the EU and Russia over the Ukraine crisis, we have downgraded our 2015 forecast due to low confidence and poor economic performance limiting investment. Having said that, 2014 was the third consecutive year of double-digit growth in the construction industry, as it rebounds from a deep recession. EU transport and energy network funding will be a driver of growth to 2024, while housing and office demand will continue its strong sustainable recovery.
We estimate strong 2014 construction industry growth of 13.4% year-on-year (y-o-y) to EUR1.47bn (USD2.0bn), before moderating to a 5.4% increase and EUR1.56bn (USD2.0bn) in 2015. 2016 and 2017 will average 6% annual growth. To the end of our forecast period in 2024, growth will slow averaging a healthy, but unspectacular 4.6% annually.
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
BMI Industry View: The Latvian medical device market is expected to increase by a CAGR of 4.0% in US dollar terms over the 2013-2018 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...
Pharmaceuticals & Healthcare
Latvia Pharmaceuticals & Healthcare
BMI View: 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 that had sought exports to Russia and the Commonwealth of Independent States (CIS) region as a remedy for lacklustre domestic demand in recent years.
Headline Expenditure Projections
Pharmaceuticals: EUR325mn (USD429mn) in 2013 to EUR340mn (USD456mn) in 2014; +4.7% in local currency terms and +6.3% in US dollar terms.
Healthcare: EUR0.94bn (USD1.24bn) in 2013 to EUR0.98bn (USD1.31bn) in 2014; +4.2% in local currency terms...
The port of Riga, Latvia's top port in terms of both total tonnage and box throughput, is set to post growth in 2015, following a strong increases in tonnage and continued growth in container throughput over the past year.
Riga's total tonnage continues to be supported by high transit volumes of oil products, while strong position in terms of box throughput is further enhanced by a robust increase in volumes over the last five years.
Over the medium-term, we project further throughput growth at the port of Riga and tonnage throughput increases at Ventspils, the country's second largest port in terms of the total throughput, which will try to resume growth following declines in freight volumes seen over the past two years.
Headline Industry Data
2015 port of Riga tonnage throughput forecast to grow 1.5%, over the medium-term (2015-2019) we...
BMI View : Despite high mobile and broadband penetration, Latvia does not score highly relative to its neighbours on BMI 's proprietary Risk/Rewards Index for the telecommunications sector. The key reasons why it remains a lacklustre market in our eyes is that the mobile market has long been saturated and there is little incentive for operators to innovate in terms of services. The wireline market is contracting, despite consumers migrating to fibre-optic connections for their combined voice, broadband and TV needs. Lattelecom remains the dominant player as its principal rival - the newly-merged Baltcom / Izzi group - has yet to make significant strides on its plans to challenge the incumbent in the...
BMI View: 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.
One of the main developments over 2014 has been the advancement of the proposal to...