Economic overview and investment trends Pēteris Strautiņš, Luminor September 26, 2018
Baltic picture
Baltic economies During this and the next year Latvia is likely to be the fastest growing economy in the Baltics GDP growth in the Baltics, % 5 4 Estonia 3 2 Latvia 1 Lithuania 0 2016 2017 2018P 2019P 2020P Source: Statistics offices data, Luminor forecast
Baltic economies Investment growth is faster here Investment in fixed assets, annual change, % 20 15 10 5 Estonia 0 Latvia -5-10 Lithuania -15-20 2016 2017 2018P 2019P 2020P Source: Statistics offices, Luminor forecast
Baltic economies Economic growth is turning migration trends, first in Estonia Migration flows in Estonia during the last three years 6 000 5 000 4 000 3 000 2 000 1 000 Total net migration... Estonian citizens... EU citizens 0-1 000-2 000 2015 2016 2017 Source: Statistics Estonia
Baltic economies Turnaround in Lithuania is really impressive, though brief Emigration and migration in Lithuania during the last three years 8 000 6 000 4 000 2 000 Emigration 0 Imigration -2 000 Balance -4 000-6 000 Source: Statistics Lithuania
Baltic economies This is a rough indicator, but it seems that Latvia lags behind other Baltics in turning around migration Net passenger flow (arrivals - departures) in sea ports and airport, the sum of last four quarters 20 000 10 000 0-10 000-20 000-30 000-40 000-50 000-60 000 Airport Sea ports TOTAL Source: Statistics Latvia Luminor calculations
Latvian economy is growing bigger and smarter
According to the showball earth theory, the place looked like this 650 million years ago. After a while, climate rapidly jumped to a different equilibrium
You can t go in circles forever Debt reduction phase in economic cycle Income growth fed by exports reaches critical point Businesses invest too little Low housing investment Cautious estimates of potential growth Slow growth of wages and jobs Negative migration balance 10
Latvian economy Export melts the last pieces of ice Annual change of goods and services exports, in quarters % 25.0% 20.0% 15.0% Goods 10.0% 5.0% Services 0.0% -5.0% 2012 2013 2014 2015 2016 2017 2018 Avots: Latvijas Bankas dati, Luminor aprēķini
Latvian economy Nation s balance sheet has improved a lot 60% Net external debt vs GDP, total and main sectors 50% 40% TOTAL 30% 20% Households and businesses 10% Financials 0% -10% Government and central bank (net) -20% Source: Bank of Latvia data, Luminor calculations
Latvian economy The biggest sectors are growing Value added changes in 2017, forecast for 2018, % Agriculture and forestry -5.0% 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% Manufacturing Construction Trade Transports 2017 Information and telecoms 2018 Real estate Commercial services Government Education Source: Statistics office data, Luminor forecast
Latvian economy Manufacturing, thus exports is changing from inside Expected growth in manufacturing sectors in 2018-6% -4% -2% 0% 2% 4% 6% 8% 10% 12% 14% Timber and furniture Food and drinks Machinery Metal processing Chemicals and pharma Paper and printing Light industry Other manufacturing Source: Luminor forecast
Latvian economy Assuming that present trends in manufacturing will continue... Output in manufacturing sectors (EURm, Y2017 prices), if rate of growth estimated in 2018 continues until 2025. Below total output growth in this scenario, % 10 000 Pārējā rūpniecība 8 000 Metal processing and machinery 6 000 Chems and pharma 4 000 Paper and printing Timber and furniture 2 000 Light industry 0 2017 2018 2019 2020 2021 2022 2023 2024 2025 Food and drinks Source: Luminor projections
Latvian economy Investment is growing, mostly in buildings Non-financial investment categories, four quarter sum, EURm 1 400 1 200 1 000 Buildings, structures 800 Other fixed assets 600 400 Equipment and machines Non-tangible investment 200 0 Source: Statistics Latvia data, Luminor calculations
Latvian economy Offices and dwellings are in vogue Building permits issued in H1, 2017 and H1, 2018 in sq m, 000 Single family homes 0 50 100 150 200 250 Secondary homes Apartments Hotels Offices Trade premises I-VI, 2017 I-VI, 2018 Annual growth rate: - 23.1% For dwellings - 80.1% for other buildings Industrial and logistics Education and health Other non-dwelling Source: Statistics Latvia
Why invest here?
Why invest here? On global scale, Latvia looks quite attractive for FDI FDI stock, ratio to GDP, 2015 100 90 80 70 60 50 40 30 20 10 0 Source: OECD 19
Why invest here? FDI in Latvia is growing, but in line with GDP, in recent times FDI stock, meur and ratio to GDP, % 16 000 60% 14 000 50% 12 000 10 000 8 000 40% 30% FDI stock 6 000 4 000 2 000 20% 10% Ratio to GDP 0 0% 20
Why invest here? Education is quite good, or at least widespread Share of people in 25-64 age group who have at least secondary education, 2017 100 90 80 70 60 50 40 30 20 10 0 Source: Eurostat data 21
Why invest here? Also the share of people with tertiary education is above average Share of population in 25-64 age group with tertiary education, %, 2017 50.0 45.0 40.0 35.0 30.0 25.0 20.0 15.0 10.0 5.0 0.0 Source: Eurostat data 22
Why invest here? Unemployment is falling, but there are places where people can and should work more The number of occupied job positions and self-employed, percentage of total population 60% 50% Greater Riga 40% LATVIJA Kurzeme 30% Vidzeme 20% Latgale 10% Zemgale 0% 2009 2010 2011 2012 2013 2014 2015 2016 Source: Statistics Latvia data. Luminor calculations
Why invest here? Global Competitiveness Index looks mostly OK, with question marks Global Competitiveness Index produced by World Economic Forum is an interesting read, but be careful Some evaluations seem reasonable, but some are truly shocking, unimaginable nonsense Source: World Economic Forum 24
Latvians work really hard! 25
Enjoy!