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 remain broadly on track in 2016 and 2017, as improving labour market conditions feed through into steady private consumption growth.
We forecast real GDP growth to expand by 2.9% in both years, but caution that the economic outlook will sour over the next decade due to the country's dire demographic profile.
Policy continuity and strengthening economic growth will ensure a narrowing of Latvia's fiscal deficit and see a reduction in the general government debt as a share of GDP, despite rising defence spending over the coming years.
Although Latvia's current account deficit will widen, it will remain much smaller than its pre-crisis levels and will pose less of a threat to financial stability in the country.
Latvia Industry Coverage (10)
BMI View: We believe that the combination of a strengthening economy and greater demand for passenger cars and SUVs will lead to further growth for the Latvian new vehicle sales market in 2016. We are targeting over 10% growth for the sector as a whole, with passenger cars set to outperform commercial vehicles.
|Passenger Car and Light Commercial Vehicle Sales|
|f = BMI forecast. Source: National sources, BMI|
Latvia Commercial Banking
|Date||Total assets||Client loans||Bond portfolio||Other||Liabilities and capital||Capital||Client deposits...|
Food & Drink
Latvia Food & Drink
BMI View: Household confidence has improved over the last year and will likely keep rising in 2016, as a result of positive developments in the labour market and steadily growing wages. Registered cars also continued to rise 2015, tallying with steady retail sales growth. Taken together, the outlook for households remains one of gradual but robust improvement as the sector draws to the end of its deleveraging cycle and disposable incomes rise. Low inflation is also helping to bolster household purchasing power, although consumer price growth will begin to pick up at the start of 2016 as the base effects from low oil decline. However, we forecast household consumption to stay static relative to total GDP over the next five years, at 61%.
Headline Industry Data (Local Currency)
2015 per capita food consumption: +3.1...
Latvia Freight Transport
BMI View: Latvia's freight industry will grow at a moderate pace over 2016, prompted by stable economic growth and an uptick in household consumption. However, it is poised to feel the negative 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 the country also acts as a conduit for trade between the EU and Russia.
The economic outlook for Latvia remains stable over the short term, although weaker demand from Russia is dragging on the industrial sector. We forecast real...
BMI View: Deteriorating relations between the EU and Russia, and Russia's subsequent recession, had a sharp knock-on effect in Latvia's construction industry, which had been performing strongly until 2015. The next decade will be characterised by muted, but steady growth, unlike the previous decade, as slowly improving economic fundamentals drive fuel investment, alongside EU funding for regional energy and transport interconnectivity projects.
Latest Updates And Structural Trends
We see industry growth falling significantly off pace to 5.4% in 2015, before rebounding softly to 6.0% in 2016, then averaging over 4% between 2015-2024, ending with a value of EUR2.4bn....
BMI View: Although a small market at present, Latvia's insurance sector does demonstrate some positive medium term growth trends. The expanding presence of regional and multinational providers will improve the range of products available in the market, stimulating premium growth in a generally underdeveloped marketplace. There are some ongoing barriers to growth, including a general lack of awareness of the benefits of insurance coverage and a lack of affordability in a market where many households fall into lower income brackets. While the strengthening domestic economy and accompanying rise in wages and disposable incomes will boost premium growth by the end of the forecast period, particularly in the life sector, the Latvian market will remain one of the smaller markets in...
Latvia Medical Devices
BMI View: We expect the medical device market to continue growing over the next five years, with a US dollar CAGR of 7.3% forecast for the 2015-2020 period. The market is largely supplied by imports, principally from Western suppliers. Domestic production has traditionally been geared towards satisfying the local market and exporting to other former Soviet countries, but as Russian demand continues to fall away we expect to see an increase in...
Pharmaceuticals & Healthcare
Latvia Pharmaceuticals & Healthcare
BMI View: Latvia's pharmaceutical and healthcare markets will be shaped by the country's ongoing fiscal austerity measures. Already severely underfunded, the healthcare sector is facing additional cuts which are proving highly unpopular with the public. The generic medicines sector will drive modest growth within the pharmaceutical market given an increasing reliance on lower-value drugs due to budgetary containment measures.
Headline Expenditure Projections
Pharmaceuticals: EUR338mn (USD372mn) in 2015 to EUR353mn (USD377mn) in 2016; +4.4% in local currency terms and -1.5% in US dollar terms. Forecast downgraded from previous quarter.
BMI View : Although Latvia has one of the most advanced mobile and broadband infrastructure markets, its services sector is less well developed. This is due to a lack of competition: Lattelecom and Baltcom dominate the wireline sector, while LMT and Tele2 dominate the mobile arena. Lattelecom - if it buys LMT - could become a prominent quad-play provider. Baltcom, too, could use its 4G spectrum to follow suit. Or it could buy faltering Bite Latvia . Either way, there is little scope for newcomers to enter and prosper in this small, saturated market.
BMI View: We continue to hold a broadly positive outlook for the Baltic countries' tourism sectors in 2016 and beyond. While these markets will continue to suffer the effects of political and economic turmoil in Russia and Ukraine, this will not prevent further robust growth in tourist arrivals. We expect growth to be supported by increased intra-Baltic and wider European tourism on the back of improving economic conditions across the continent. Of the three Baltic countries, we maintain our view that Latvia and Estonia will see the strongest arrivals growth over the next few years, averaging around 5-6% annually.
Key Updates & Forecasts
The Baltic region's tourism sector will continue to grow at a healthy rate in 2016 with visitor arrivals in Estonia, Latvia and Lithuania...