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 in 2016, although we emphasize that labour market improvements are partly the result of high levels of emigration.
We see small but 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 medium-term growth outlook, and forecast average real GDP growth of just 3.0% between 2017 and 2020, from a previous forecast of 3.4%.
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: Latvia's underwriting activity is limited due to its small size and relatively low income levels compared to other EU countries. We do, however, hold an optimistic view on premium growth in both the life and non-life insurance segments. Both the Latvian government and incumbent companies have indicated their commitment to improve awareness among the population of the benefits of insurance and other financial products.
Latvia Medical Devices
BMI Industry View: We expect the medical device market to continue growing over the next five years, with a US dollar CAGR of 2.8% forecast for the 2014-2019 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 falls away we expect to see an increase in...
Pharmaceuticals & Healthcare
Latvia Pharmaceuticals & Healthcare
BMI View: The development of Latvia's market will be shaped by an increased emphasis on generic drugs; an implication of fiscal austerity measures. As a result, despite its transparent regulatory policies and business-friendly operating environment, the Latvian pharmaceutical market will continue to remain a modest prospect for drugmakers. Exports will also be impacted by regional tensions.
Headline Expenditure Projections
Pharmaceuticals: EUR319mn (USD428mn) in 2014 to EUR338mn (USD372mn) in 2015; +5.8% in local currency terms and -13.2% in US dollar terms. Forecast unchanged from previous quarter.
Healthcare: EUR970mn (USD1.30bn) in 2014 to EUR1.01bn (USD1.11bn) in 2015; +4.0%...
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...