SEB's Baltic Household Outlook April 2012

SEB Baltic Household OutlookApril 2012

Edmunds Rudzitis

Julita Varanauskiene

Triin Messimas

2012-04-18 | SEB Baltic Household Outlook - April'2012 2

A bumpy jobs recoveryThe Baltics posted the largest fall in unemployment among EU countries. A long way to return to pre-crisis levels.

Baltic economies has regained a part of lost jobs, however the jobs market recovery loses momentum.

0%

4%

8%

12%

16%

20%

24%

1Q07

2Q07

3Q07

4Q07

1Q08

2Q08

3Q08

4Q08

1Q09

2Q09

3Q09

4Q09

1Q10

2Q10

3Q10

4Q10

1Q11

2Q11

3Q11

4Q11

Latvia Lithuania Estonia

Unemployment rate* (%)

*Persons aged 15-74

Source: National Statistics

-16%

-12%

-8%

-4%

0%

4%

8%

12%

1Q07

2Q07

3Q07

4Q07

1Q08

2Q08

3Q08

4Q08

1Q09

2Q09

3Q09

4Q09

1Q10

2Q10

3Q10

4Q10

1Q11

2Q11

3Q11

4Q11


Changes in employment (%, Y-o-Y)



More money in the pockets of workers

Real wages up in Estonia and Latvia, while Lithuanians’ real earnings have decreased already for 3 years.

Wages rise as productivity increases. In Estonia the fastest labour income growth.

Real wages (%, YoY)

-12%

-8%

-4%

0%

4%

8%

12%

2Q08

3Q08

4Q08

1Q09

2Q09

3Q09

4Q09

1Q10

2Q10

3Q10

4Q10

1Q11

2Q11

3Q11

4Q11



Average gross wages and salaries (%, YoY)

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

1Q08

2Q08

3Q08

4Q08

1Q09

2Q09

3Q09

4Q09

1Q10

2Q10

3Q10

4Q10

1Q11

2Q11

3Q11

4Q11




Consumption supported by earnings abroad

The remittances (incl. earnings abroad) have increased the households’ disposable income.

In 2011 household consumption rose by 6.1% in Lithuania and 4.4% in Estonia and Latvia.

Household consumption expenditure (%, YoY)

-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

1Q08

2Q08

3Q08

4Q08

1Q09

2Q09

3Q09

4Q09

1Q10

2Q10

3Q10

4Q10

1Q11

2Q11

3Q11

4Q11



Remittances and earnings abroad (including "other sectors") - share of disposable income (%)

0%

3%

6%

9%

12%

15%

18%

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Source: Eurostat, SEB calculations



Household Consumption, Confidence and Leverage

Triin Messimas

SEB Estonia


Vigorous growth in retail trade in the beginning of 2012

In January 2012:

� 14.8% in Estonia

� 15.1% in Latvia

� 11.7% in Lithuania

� the EU average -0.1%

In February 2012:

� 14.8% in Estonia

� 10% in Latvia

� 4.2% in Lithuania

� the EU average -1.1%


Increasing consumption plans in Latvia and Lithuania, decreasing in Estonia

March 2012

� in Estonia -35.9

� in Latvia -8.1

� in Lithuania -12.3

� the EU average -23.7

� The indicator in Estonia has decreased since Q4 2011

� In Latvia and Lithuania it has showed increasing trend

2012-04-18 | SEB Baltic Household Outlook - April'2012 82012-04-17

Consumer confidence has decreased sharply in Estonia to the same level as in Latvia and Lithuani a

In March 2012:

� in Estonia -12.9

� in Latvia -18.1

� in Lithuania -21.3

� the EU average -19.3

The index in Estonia fell in November 2011 when households realised the possible consequences of the European debt crises.


Assessment about financial situation of households is strongest in Estonia and weakest in Latvia

In March 2012:

� in Estonia 11.3

� in Latvia -5.5

� in Lithuania 2.1

� the EU average 11.9

The index has been stable during the recession in Estonia while in Latvia and Lithuania it has experienced deterioration and slight recovery.


Households continue to be cautious in taking financial responsibilities

Households continue deleveraging.

Compared to the end of 2008, the household loan portfolio in Feb 2012 has decreased:

� in Latvia by 17.8%

� in Lithuania by 13.8%

� in Estonia by 9.1%


The highest debt levels are in Estonia and the lowest in Lithuania

There was rapid increase in household leveraging since 2000.

The debt-to-income ratio of households increased from 2000 to 2007:

� in Estonia from 15% to 88%

� in Latvia from 9% to 81%

� in Lithuania from 2% to 44%

� in Euro area from 75% to 94%


Interest rate of housing loans has decreased

• The average interest rate of housing loans have decreased since October 2008 from 6.35% to 3.27% in February 2012.

• Since September 2012 the interest rate has been lower than inflation rate.

• Deleveraging of household balance sheets continues. However, some households are ready to take advantage of low house prices. Hence, in 2012 the loan volumes stop to decrease.


Household SavingsJulita Varanauskiene

SEB Lithuania


Household savings structure: deposits still dominate

Deposits and pension savings per capita (EUR)

0

1 000

2 000

3 000

4 000

5 000

2008 2011 2008 2011 2008 2011


Deposits II pillar pension funds Private pension funds and life insurance

+42% (+76 mEUR)+75% (+155 mEUR)+46% (+118 mEUR)III pillar pension funds and life insurance

+55% (+402 mEUR)+83% (+536 mEUR)+89% (+587 mEUR)II pillar pension funds

+20% (+728 mEUR)+8% (+567 mEUR)-0,5% (-19 mEUR)Deposits

EstoniaLithuaniaLatvia

Source: Central banks


Banks’ collapse didn’t affect household behavior much…

Household deposits change (Jan2008=100)

80

90

100

110

120

130

140

150

2008 2009 2010 2011 2012

Lithuania Latvia Estonia

Source: Central banks

Krajbanka

Snoras


… but people are more cautious

Household deposits distribution change in Lithuania

(mEUR)

0

1000

2000

3000

4000

5000

6000

Banks with

higher deposit

interest rates

Banks with

middle deposit

interest rates

Banks with

lower deposit

interest rates

Credit unions State bonds

September 2011 January 2012

Sources: Central bank, Bankers' association, Central depository www.indeliai.lt, SEB estimates

NB "Snoras" deposits not includet in September 2011 statistics

-12%+6%

+18%

+9%+23%


Largest savings of Estonian households, lowest loan-to-deposit ratio of Lithuanian househol ds

Loans and deposits per capita (Eur)

0

1.000

2.000

3.000

4.000

5.000

6.000

1H2011 2H2011 1H2011 2H2011 1H2011 2H2011


Deposits per capita (EUR) Loans per capita (EUR)

Source National banks


What about the future?Edmunds Rudzitis

SEB Latvia


What’s ahead for 2012?

• The number of new jobs will be lower than last year. In Latvia and Lithuania unemployment is expected to decline further, albeit at a slow pace.

• A modest average wage growth, mainly related to increase in variable part (bonuses, premiums). Moreover, wage growth will be uneven within sectors.

• The slower economic growth will lead to lower inflation, however rise in energy prices boosts expenditure related to housing and transport.

• Borrowers may benefit from lower interest rates on housing loans, while savers are likely to see interest income dip.

OR


Demographics and the future workforce

Crude birth rate (per 1000 inhabitants)

6

8

10

12

14

16

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011



Children are our future

The pace of population ageing will accelerate in the Baltic countries.

Over the next 10 years the number of working age people will decrease significantly.

Population structure by age groups in 2011 and 2020 (Latvia)

200 000 0 200 000

0-4

5-9

10-14

15-19

20-24

25-29

30-34

35-39

40-44

45-49

50-54

55-59

60-64

65-69

70-74

75-79

80+

Source: CSB, SEB estimates

2020 2011


Population ageing and pension system The pension system are facing challenges. The total dependency ratio will grow considerably.

Is decline in replacement ratios imminent?

Larger support to long-term savings.

The ratio of old-age pension to net wage

40%

45%

50%

55%

60%

IVQ2008 IV2011

Source: National Statistics; SEB estimations


The total dependency ratio

30

40

50

60

70

80

90

2011 2020F 2060F

Source: National Statistics;Eurostat;SEB estimations



Edmunds Rudzitis, SEB Latvia

Julita Varanauskiene, SEB Lithuania

Triin Messimas, SEB Estonia

Thank You!

Questions?

SEB's Baltic Household Outlook April 2012

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