SEB Baltic Business Outlook 2024: Small and medium-sized businesses are most affected by taxation, inflation, and energy costs

Despite the economic outlook and the deteriorating geopolitical situation in recent years, small and medium-sized enterprises in the Baltic region remain pragmatically optimistic. This is according to the SEB Baltic Business Survey 2024 (Baltic Business Outlook), for which more than 2,200 small and medium-sized enterprises in the Baltic states were surveyed. In Latvia, the majority of companies surveyed are moderately optimistic - 70% of respondents expect an increase in turnover of up to 15%. Entrepreneurs in Latvia and the other Baltic states cited the tax burden, inflation and energy costs as the most important factors that could have the greatest impact on company turnover this year. 

An increase in turnover of more than 15% was predicted most frequently by Lithuanian entrepreneurs (10% of respondents), while there were relatively fewer optimists in Latvia and Estonia (5% in Latvia, 7% in Estonia). However, entrepreneurs in Estonia are the most pessimistic, with 27% of respondents predicting a drop in turnover this year, compared to 22 in Latvia and 24% in Lithuania.

“Latvia has managed to overcome the challenges of recent years relatively well. The difficult part is behind us, while the outlook for the economy has stabilised beyond 2024. This is also reflected in the cautious optimism in the SME segment. Their main focus remains on the domestic market, where demand is starting to recover this year. However, the fact that the recovery will be slow and uneven this year and that uncertainty remains high compared to last year has slightly reduced the proportion of strong optimists and kept the number of pessimists relatively high. Under these circumstances, it is not only important to focus on maintaining business volumes, but it is also a favourable time in terms of costs and the availability of various resources to invest in business development and new markets. As growth strengthens, it may prove more expensive and time-consuming to start projects in 2025,” says Dainis Gašpuitis, macroeconomist at SEB banka. 

Companies focus on domestic market

When asked about their main priorities for 2024, 40% of Lithuanian companies named the introduction of new products or services as their top priority, while the majority of Latvian and Estonian companies will focus their efforts on ensuring the stability of the company and optimising costs.

All three Baltic countries are dependent on foreign trade, but the challenges of the global economy and volatile foreign demand in recent years have affected business development in export markets. Therefore, the majority of respondents stated that they plan to focus on the local market this year, with the highest share in Latvia (76%) and Estonia (75%), while in Lithuania it is 63%. Lithuanian entrepreneurs are more likely than those in neighbouring countries to plan to enter new markets (18% in Lithuania, 11% in Latvia and 11% in Estonia), and more likely than those in Latvia and Estonia to look outside the Baltic and Scandinavian countries. 

A key factor for the long-term success of companies is their ability to invest in their own development. A third of respondents in Latvia and Lithuania and 40% in Estonia were unsure about the level of investment they will make this year to improve the performance of their businesses. Around a quarter of respondents in all Baltic countries were confident that they will not invest at all in 2024, the highest level in recent years. Of the companies planning to invest, most want to make small investments of up to EUR 10,000. But there are a significant number of companies in Latvia and Lithuania planning to invest more than EUR 100,000 this year.

Innovation is also important for companies to remain competitive. Respondents were therefore asked about their plans for innovation in 2024. Around a quarter of respondents in all Baltic countries have committed to investing in product or service innovation. Latvia and Lithuania also show great interest in the automation of production or administrative processes, although surprisingly few companies in Estonia have such intentions (18% in Latvia, 20% in Lithuania and 9% in Estonia).

Lithuanian companies were also optimistic about their plans to hire new staff. 23% of Lithuanian companies said they were ready to hire new staff, compared to 16% in Latvia and 13% in Estonia. Another positive development is that very few Baltic companies are planning to downsize, while the majority are willing to retain their current workforce. 

Read more about the SEB Baltic Business Survey 2024 results.