The confidence of Estonia’s small and medium-sized enterprises has deteriorated sharply because of the war, according to a survey carried out by SEB Bank, an Estonian subsidiary of a Swedish bank operating in Estonia.
The share of companies forecasting a fall in turnover has more than tripled since January, with energy prices and supply chain problems being the main concerns, according to the survey.
While in January, only 15% of Estonian SMEs surveyed predicted a decline in turnover, now this amounts to as many as half of them. There has also been a decline in the number of respondents forecasting turnover growth of more than 15%, from 15% at the start of the year to 5% in the May survey.
“The marked pessimism of companies of this size is explained by their greater vulnerability and exposure to the external environment, as we saw during the previous economic crisis. As SMEs account for a large share of the total number of companies operating in Estonia, it can be said that a significant part of Estonian business is experiencing increased insecurity and is under pressure in this context,” Ainar Leppänen, the head of retail banking at SEB, said in a statement.
Outlook is even bleaker in Latvia and Lithuania
In Latvia and Lithuania, business forecasts are even more pessimistic: 56% of respondents in Latvia and 64% in Lithuania expect a drop in turnover due to the war. More than 15% growth in turnover is expected by 6% of companies.
“Such a significant change in the forecasts of Baltic companies is unlikely to materialise, as inflation alone will boost turnover. As for the more pessimistic forecasts for turnover from our southern neighbours, this result was also to be expected: Lithuania has the closest trade links with Russia and Belarus, Latvia somewhat less, and Estonia is the least dependent on trade with its eastern neighbours and Belarus, so the sanctions affect our companies the least,” Leppänen said.
High energy prices are currently the biggest challenge for Estonian businesses, according to 47% of respondents. Similarly, Lithuanian (51%) and Latvian (60%) companies cite it as the main factor affecting their financial situation.
“This is understandable, given the steep increases in electricity, natural gas, heating, and fuel prices. As these are also input prices, we still see the effect of rising prices for goods and services, but the speed of pass-through varies by sector,” Leppänen noted.
The financial sector is well adapted and ready to respond
Another major challenge involves supply chain problems, noted by 32% of Estonian SMEs. Among the Baltic countries, the problem is particularly acute in Lithuania (43%), where industry accounts for the largest share of the economy. In turn, 15% of businesses in Estonia say that outstanding invoices and late payments from customers are a problem.
“This is a negative indicator, reflecting the liquidity problems in some sectors and the increased need for working capital due to higher raw material and other input prices. In other words, invoices to suppliers and partners are delayed so that there is enough money for the company’s daily activities and expenses,” Leppänen pointed out.
“At the same time, only 6% of companies report difficulties in accessing finance, showing that the financial sector is well adapted and ready to respond to financing needs.”
The survey took place in May 2022. A total of 2,072 companies in the Baltic countries responded, 811 of them in Estonia. Among the companies that took part in the survey, 86 per cent had up to 10 employees.
SEB is a northern European financial services group headquartered in Stockholm, Sweden. In Sweden and the Baltic countries, it has a full financial service offering. SEB Bank is its fully owned subsidiary in Estonia.