On 16 January 2023, PricewaterhouseCoopers (PwC) published the results of its PwC’s 26th Annual Global CEO Survey, which interviewed 4,410 CEOs in 105 countries. In late 2022, we conducted PwC’s Baltic CEO Survey in Latvia, Lithuania and Estonia to measure the business climate across the Baltics by listening to CEOs’ opinions, plans and visions for the business environment.
“Last year was another testing time for all of us. Just when it seemed that we had overcome one crisis and learned to live in the post-pandemic world, another crisis arrived, one that’s still so hard to grasp. The Russian invasion of Ukraine, the energy crisis and the rising rate of inflation have affected every one of us, representing another trial to the economy, people and businesses. This is mentioned by CEOs in the Baltics and other regions, who expect a significant slowdown in global and national economic growth. The good news? Executives are more optimistic about their companies’ own prospects. They see the need for change and they’re also thinking about the steps they need to get there,”
CEOs are considerably less optimistic about global economic growth
PwC’s Baltic CEO Survey 2022 found CEOs to be more optimistic after the pandemic. This year’s survey suggests that optimism has been replaced by pessimism. More than a half of Baltic CEOs (51% in Latvia, 55% in Lithuania, and 51% in Estonia) expect a downturn in the global economy over the next 12 months. CEOs in Central and Eastern Europe (CEE) are even more pessimistic about economic growth – 74% expect a downturn (73% in Western Europe), with the global percentage reaching 73%, the most pessimistic outlook in the last decade.
CEOs’ national economic growth forecasts are also pessimistic – more than a half of Latvian and Estonian CEOs (63% and 62% respectively) say they expect a slowdown in national economic growth over the next 12 months. Compared to last year, when a half of CEOs expected economic growth, this indicator has increased by over 40 points. Lithuanian CEOs are more optimistic and there is a difference of opinion: 45% expect that economic growth will not change, while 40% think it will slow down.
Latvian CEOs remain quite confident about their own company’s revenue growth
Despite the geopolitical and economic turmoil, Baltic CEOs remain confident about their own company’s revenue growth over the next 12 months, but CEOs’ forecasts are no longer so optimistic as they were a year ago. Revenue growth is cited by 46% of CEOs in Latvia (down from 52% last year), 53% in Lithuania (down from 66% last year) and 45% in Estonia (down from 72% last year), which shows the largest drop – by 27 points.
This year, 36% of Latvian CEOs say their own company’s revenue will remain at the current level over the next 12 months, while 18% (up from 13% last year) expect a drop in revenue.
Baltic CEOs are confident about stable revenue growth in their own companies over the next three years (80% in Latvia, 89% in Lithuania, and 83% in Estonia). The high level of optimism indicates that CEOs are confident in their ability to overcome the uncertainty and grow their business. PwC’s Global CEO Survey also suggests that CEOs in CEE and globally are confident about their own company’s revenue growth over the next 12 months and the next three years.
Corporate viability
One third of CEOs in Latvia (31%) and Estonia (32%) do not think their companies will be economically viable a decade from now if they continue on their current path (47% in Lithuania). The survey also suggests that CEOs recognise the seriousness of the situation and are taking steps to avoid it.
Baltic CEOs plan to invest in process and system automations
The survey reveals that CEOs are considering investing in four key areas. Baltic CEOs are mainly considering investing in automating their processes and systems over the next 12 months (62% of Latvian CEOs mention investing in this area). Their companies are also considering investment in upskilling their workforce in priority areas (58%), using alternative energy sources (38%) and adopting new technology solutions (37%).
Biggest threats – geopolitical conflict, inflation and energy crisis
Baltic CEOs are mainly agreed on threats, while CEOs in Latvia and Lithuania are considerably more concerned about the geopolitical situation and its threats than their counterparts in Estonia. According to PwC’s Global CEO Survey, CEOs are mainly concerned about threats posed by inflation (86% in CEE, 81% in Western Europe, and 79% globally), macroeconomic volatility (81% in CEE, 75% in Western Europe, and 73% globally) and geopolitical conflict (77% in CEE, 65% in Western Europe, and 60% globally).
Latvian CEOs say their companies mainly plan to diversify their product/service offerings (37%), to invest in cybersecurity or data protection (28%), and to adapt their presence in certain target markets (25%) in order to mitigate the consequences of geopolitical conflict. Overall the situation is similar across the Baltics, with different priorities and proportions of their planned measures. CERT.LV, Latvia’s IT security incident response institution, recognises 2022 as the most challenging and intensive cyber-attack period in the Latvian cyberspace in the institution’s history as the number of registered and processed incidents rose by 40%.1
Sustainability is gaining traction
Sustainability factors are increasingly affecting businesses, government agencies and their staff, as well as investor and consumer choices. Climate change drives the need to take action, so more organisations globally commit to cutting their CO2 emissions. Organisations adopt certain ESG standards in their business to adapt to the various sustainability challenges.
Sustainability is a fundamental cornerstone of business, yet the EU Green Deal and the objective of climate neutrality gives sustainability a more prominent role and makes many organisations revise their current business model. This is supported by the Corporate Sustainability Reporting Directive, which was approved by the EU Council in November 2022 and requires a wide range of organisations to include in their financial statements a sustainability report on their sustainability goals and how those are met to create a greener, more equitable and more sustainable Europe and to achieve its sustainable development goals.
In Latvia and Estonia, the company’s board mainly handles ESG matters, while in Lithuania those are commonly dealt with by a dedicated ESG department or expert under close supervision of the board, as stated by 36% Lithuanian CEOs (only 13% in Latvia).
Based on Latvian CEOs’ responses, 33% say their companies have already drawn up a plan for transitioning to sustainable development, while 31% are currently working on such a plan. One third of Latvian CEOs (37%) say their companies have not drawn up such a plan and are not planning to do so. 35% of Lithuanian CEOs and only 20% of Estonian CEOs share this attitude.
Steps towards more sustainable business
About one fourth of Latvian CEOs say they plan to deal with ESG materiality assessment issues (24%) and carbon footprint calculations (21%) and to organise relevant training (20%) over the next 12 months. Lithuanian and Estonian CEOs mention carbon footprint calculations (39% in Lithuania and 32% in Estonia), developing an ESG strategy (34% in Lithuania and 31% in Estonia) and ESG training (30% in Lithuania and 29% in Estonia) as key ESG measures they plan to take over the next 12 months.
No massive lay-offs expected
Compared to 31 January 2022, when Latvia’s registered unemployment level was 6.9%, it had dropped to 6.3% by January 2023. The unemployment level in the Latgale region (13%) is still more than twice as high as the Latvian average and almost three times as high as the Riga region (4.5%). New jobs are mainly created in the active economic regions and large cities, while the highest number of jobseekers is in underdeveloped regions, making it difficult to develop a balanced labour market.
Overall the labour market has stabilised, employment is rising again and unemployment continues to fall,
while headcount and employment levels are still slightly behind the pre-pandemic period, which alongside demographic processes tightens labour supply and increases the risk of labour shortages. The pandemic has significantly changed public habits by creating not only unprecedented opportunities and needs in the labour market but also new challenges. The daily use of various digital solutions has increased considerably to provide the required infrastructure for remote work, learning, shopping, and other processes.
These changes also mean far more opportunities for remote work affecting the labour market, offering various benefits to employees and employers, and causing certain employee groups to upskill, which requires careful action by policymakers.
Recruitment is a challenge in the Baltic region
Historically, one of the biggest challenges for Baltic CEOs has been the availability of labour. Overall Baltic CEOs say that recruiting qualified workers is still a challenge, yet this has not become considerably harder over the years. Last year, 67% of Latvian CEOs said that recruitment had become more difficult, but this has dropped by 15 points to 52% this year. Another major drop occurred in Lithuania and Estonia. In Lithuania, where 89% of CEOs said they find recruitment more difficult last year, only 55% think so this year, with 43% in Estonia (down from 75% last year). There are now more CEOs who think that recruitment is as challenging as it was a year ago (40% in Latvia, 33% in Lithuania, and 43% in Estonia). When it comes to attracting new talent, Baltic CEOs are agreed that recruitment is still a serious challenge in our region.
One third of Latvian CEOs (34%, a drop of 6 points on last year) expect their companies to increase headcount over the next 12 months, the lowest percentage since 2019, when about one fourth (27%) of Latvian CEOs expected a headcount increase. A similar forecast comes from CEOs in the other Baltic States. It’s important to note that only 5% of Latvian CEOs (down from 9% last year) plan to reduce headcount. The majority of CEOs in Latvia (62%) as well as in the other Baltic States expect that headcount will remain at the current levels over the next 12 months.
Government tasks – competitive taxes, defence and security
The quality of the business environment is clearly a key precondition for the Latvian economy’s competitiveness and development. The better the conditions for businesses, the more investment can be expected in the national economy, contributing to higher levels of well-being among its citizens.
In October 2022, Latvia elected its 14th Parliament, which on 14 December approved the new, 41st Cabinet of Ministers, boasting the new Ministry for Climate and Energy. As the government was being put together, there were many discussions about priorities. The public and businesses expect the government to implement serious reforms and take a firm line on issues of national importance in this challenging global situation. The new government aims to achieve economic transformation in line with the approved government declaration, which provides for targeted work in five closely related areas: national security & foreign policy; education; energy; competitiveness & quality of life; and human & public health3.
Assessment of government work
This year, general satisfaction with government work among Latvian CEOs is lower than in Lithuania and Estonia over the last year. Latvian CEOs are overall satisfied with what the government achieved in national defence and security over the last 12 months, but this is the only area CEOs are more or less satisfied with. CEOs say that the government’s attempts to cut government costs (86%, up from 83% last year) and to improve the business environment (70%, and 70% last year) are still rather inefficient, while CEOs’ dissatisfaction with the government’s performance in adapting educational policy to economic changes has grown significantly over the last year (76%, up from 60% last year).
Government priorities perceived by CEOs
For the fourth consecutive year, Latvian CEOs have mentioned promoting a competitive tax environment as their main government priority for the next 12 months (68%, down from 71% last year), followed by improving the business environment (55%, down from 61% last year), which has ranked second for the last four years; cutting government costs was cited as the third priority (55%, up from 52% last year). The significance of national defence and security has grown substantially. This was cited by 24% of Latvian CEOs last year, and 45% consider it a priority this year. Lithuanian and Estonian CEOs say their top government priority is national defence and security (62% in Lithuania and 66% in Estonia) and expect government priorities to include adequately responding to energy crisis (51% in both countries). Lithuanian CEOs (56%, down from 64% last year) say promoting a competitive tax environment should be a key government priority, while Estonian CEOs’ top three priorities include adapting educational policy to economic changes (43%, down from 55% last year).
PowerBi dataset:
About the survey
PwC’s Baltic CEO survey was conducted online over the period from 28 November 2022 to 9 January 2023. We interviewed 323 CEOs (104 in Latvia, 164 in Estonia, and 55 in Lithuania) from sectors such as trade, finance, construction, manufacturing, IT and telecommunications, health care, and transport. The Latvian companies surveyed had the following revenues for the last financial year:
- 45% up to EUR 5 million
- 8% EUR 5–10 million
- 10% EUR 11–20 million
- 9% EUR 21–50 million
- 3% EUR 51–99 million
- 6% EUR 100–200 million
- 2% over EUR 200 million
- 18% did not wish to state their revenue
Notes:
- The survey was based on questions from our Global CEO Survey and included questions specific to Latvia, Estonia and Lithuania.
- The percentage differences shown in this report are based on rounded percentages.
