SEB's Baltic Household Outlook April 2012

Edmunds Rudzitis
SEB Baltic Household Outlook Julita Varanauskiene
April 2012 Triin Messimas

A bumpy jobs recovery
The Baltics posted the largest fall in Changes in employment (% Y-o-Y)
,

unemployment among EU countries. 12%

A long way to return to pre-crisis 8%

levels.
4%
Unemployment rate* (%)
24% 0%

20% -4%

16% -8%

-12%
12%

-16%
8%

2Q 7
3Q 7
07

1Q 7
2Q 8
08

4Q 8
1Q 8
09

3Q 9
4Q 9
09

2Q 0
3Q 0
4Q 0
10

2Q 1
3Q 1
11
11
0
0

0
0

0
0

0
0

1
1
1

1
1
1Q

4Q

3Q

2Q

1Q

1Q

4Q
4% Latvia Lithuania Estonia
Source: National Statistics

0%
2Q 7
07

4Q 7
1Q 7
08

3Q 8
4Q 8
08

2Q 9
3Q 9
4Q 9
1Q 9
10

3Q 0
4Q 0
10

2Q 1
11

4Q 1
11

Baltic economies has regained a part
0

0
0

0
0

0
0
0
0

1
1

1

1
1Q

3Q

2Q

1Q

2Q

1Q

3Q

Latvia Lithuania Estonia
of lost jobs, however the jobs market
*Persons aged 15-74
Source: National Statistics recovery loses momentum.

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

More money in the pockets of workers
Wages rise as productivity increases. R wages (% YoY)
eal ,
12%
In Estonia the fastest labour income
growth. 8%

Average gross wages and salaries (% YoY)
,
4%
30%

25% 0%

20%
-4%
15%

10%
-8%
5%

0% -12%

08

08

08

09
09

09

09

10
10

10

10

11

11

11

11
2Q

3Q

4Q

1Q
2Q

3Q

4Q

1Q

2Q

3Q

4Q

1Q

2Q

3Q

4Q
-5%

-10% Latvia Lithuania Estonia

-15%
08
08
08
08
09
09
09
09
10
10
10
10
11
11
11
11
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q

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


Consumption supported by earnings abroad
In 2011 household consumption rose Remittances and earnings abroad (including "other
sectors") - share of disposable income (% )
by 6.1% in Lithuania and 4.4% in 18%

Estonia and Latvia. 15%

Household consumption expenditure (% YoY)
,
12%
15%

10% 9%

5%
6%
0%

-5% 3%

-10%
0%
-15%

00

01

02

03

04

05

06

07

08

09

10
20

20

20

20

20

20

20

20

20

20

20
-20%
-25%
Source: Eurostat, SEB calculations

-30%
08
08
08

08
09
09
09
09
10
10
10

10
11
11
11
11

The remittances (incl. earnings
1Q
2Q
3Q
4Q
1Q

2Q
3Q
4Q

1Q
2Q
3Q

4Q
1Q
2Q
3Q
4Q

Latvia Lithuania Estonia abroad) have increased the
Source: National Statistics households’ disposable income.


Household Consumption, Triin Messimas
Confidence and Leverage 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


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

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.

2012-04-17 | SEB Baltic Household Outlook - April'2012
2012-04-18 8

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.


Julita Varanauskiene
Household Savings
SEB Lithuania


Household savings structure: deposits still
dominate
5 000
Deposits and pension savings per capita (EUR)
Deposits II pillar pension funds Private pension funds and life insurance
4 000

3 000

2 000

1 000

0
2008 2011 2008 2011 2008 2011

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

II pillar pension funds +89% (+587 mEUR) +83% (+536 mEUR) +55% (+402 mEUR)
III pillar pension funds and +46% (+118 mEUR) +75% (+155 mEUR) +42% (+76 mEUR)
life insurance Source: Central banks


Banks’ collapse didn’t affect household
behavior much…
Household deposits change (Jan2008=100)

Lithuania Latvia Estonia

150
140 Snoras
130
120
110
100
90
80
2008 2009 2010 2011 Krajbanka 2012
Source: Central banks


… but people are more cautious
Household deposits distribution change in Lithuania
(mEUR)

September 2011 January 2012
6000
+18%
5000

4000

3000

2000
-12%
1000 +6% +9%
+23%
0
Banks with Banks with Banks with Credit unions State bonds
higher deposit middle deposit lower deposit
interest rates interest rates interest rates
Sources: Central bank, Bankers' association, Central depository www.indeliai.lt, SEB estimates
NB "Snoras" deposits not includet in September 2011 statistics


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

Loans and deposits per capita (Eur)

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

6.000
5.000
4.000
3.000
2.000
1.000
0
1H2011 2H2011 1H2011 2H2011 1H2011 2H2011


Source National banks


Edmunds Rudzitis
What about the future? SEB Latvia


What’s ahead for 2012?

OR

• 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.


Demographics and the future workforce
The pace of population ageing will Population structure by age groups in 2011 and 2020
(Latvia)

accelerate in the Baltic countries. 2020 80+ 2011
75-79
Crude birth rate (per 1000 inhabitants)
70-74
16
65-69
60-64
55-59

14 Children are our future 50-54
45-49
40-44
35-39
12
30-34
25-29
20-24
10 15-19
10-14
5-9
0-4
8
200 000 0 200 000

Source: CSB, SEB estimates

6
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011

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


Population ageing and pension system
The pension system are facing The ratio of old-age pension to net wage

challenges. The total dependency 60%

ratio will grow considerably.
55%
The total dependency ratio
90

80 50%

70
45%

60

40%
50
IVQ2008 IV2011

40
Source: National Statistics; SEB estimations

30 Is decline in replacement ratios
2011 2020F 2060F

imminent?
Source: National Statistics;Eurostat;SEB estimations Larger support to long-term savings.


Edmunds Rudzitis, SEB Latvia
Thank You!
Julita Varanauskiene, SEB Lithuania
Triin Messimas, SEB Estonia Questions?


SEB's Baltic Household Outlook April 2012

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