SEB bankas Baltijas mājsaimniecību apskats

October 2013Baltic Household

Outlook

Edmunds Rudzitis

SEB LatviaHousehold income

3

Labour market improvements continue

2013-10-23 3

• Unemployment is at the lowest level since 2008 and well below the peak level

• In Estonia the unemployment rate has decreased to 8.1 per cent, while in other Baltic countries the

unemployment rate is still above the 10 per cent level.

2013-10-23

0%

2%

4%

6%

8%

10%

Source: National Statistics

Average gross wages and salaries (%, YoY)

Latvia Lithuania Estonia

3

6

9

12

15

18

21


Unemployment (job-seekers*) rate, (%)

* Persons aged 15-74 Source: National Statistics

4

Workers’ purchasing power is improving…

2013-10-23 4

• In the first half of 2013 real wage growth was positive in all Baltic countries due to wage growth

and lower inflation

2013-10-23

450470

488514

464 475 485506

660686

716

778

300

400

500

600

700

800

900

2Q10 2Q11 2Q12 2Q13


Average net wages (in euros)


-4%

-2%

0%

2%

4%

6%


Real wages (%, YoY)


5

… but real income are still below the pre-crises level

2013-10-23 52013-10-23

• Compared to 2008, the average real wage is approximately 13 per cent lower in Lithuania, 8 per

cent lower in Latvia. In Estonia the real wage is below the pre-crisis level by approximately 3 per

cent.

100

110

120

130

140

150

160

170

Source: National Statistics, SEB calculations

Dynamics of real wage (1Q2005=100)


Household consumption

and liabilities

Triin Messimas

SEB Estonia

7

Household consumption and GDP

• In Lithuania the share of household consumption is the highest at 65%, in Latvia at 63% and in

Estonia at the lowest 51%. The EU average is 55%

• However, the contribution of household consumption to GDP growth has increased as the other

components (export) is modest.

2013-10-23

-20

-15

-10

-5

0

5

10

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

2009 2010 2011 2012 2013

Consumption in GDP, Estonia

Y-o-Y Change (real values)Contribution to GDP growth (%)

Source: Statistics Estonia

40

50

60

70

80

Source: Eurostat

Consumption of household sectorshare of GDP (%)

Estonia Latvia Lithuania

8

Household consumption developments

• The real consumption growth of households has remained in the lower level compared to the

pre-boom period, namely at 4%-6%

• The growth levels in the Baltics are on higher levels than EU average which has been negative

since the beginning of 2012

2013-10-23

-10

-5

0

5

10

15

20

Retail trade (deflated turnover)y-o-y change, %

Estonia LatviaLithuania EU27

Source: Eurostat

-30

-20

-10

0

10

20

30

40

Consumption of household sector(y-o-y real change, %)


Source: Eurostat

9

Plans for major purchases

• Lithuanians are most optimistic in their assessment about conducting major purchases at present

and in the future.

• Compared to the assessments a year ago, Latvians have improved their assessment about major

purchases now but they are more pessimistic about major purchases in the coming year.

2013-10-23

-14.7

-24.1

6.8

-5.5

-16.7

9.8

-30

-25

-20

-15

-10

-5

0

5

10

15


Major purchases at present

August 2012 August 2013

Source: Eurostat

-38.1

-13.6-10.3

-39.6

-24.0

-8.4

-45

-40

-35

-30

-25

-20

-15

-10

-5

0


Major purchases next 12 months

August 2012 August 2013

Source: Eurostat

10

Share of compulsory expenses

• The share of food consumption is in the Baltic states higher than is the EU average; it is the

highest in Lithuania

• The share of compulsory expenses has increased in 2012 compared to 2007 most in Estonia (by

3pp) and slightly less in Latvia and Lithuania (by 2 pp)

2013-10-23

19

23

28

13

1718

25

13

2019

25

13

19 19

25

13

0

5

10

15

20

25

30

Estonia Latvia Lithuania EU27

Share of food consumption (%)

2004 2007 2009 2012

2021

15

2119

22

14

2221

26

16

24

20

23

16

24

0

5

10

15

20

25

30

Estonia Latvia Lithuania EU27

Source: Eurostat

Share of housing costs from total consumption (%)

2004 2007 2009 2012

11

Changes in household liabilities

• The downward trend on the housing credit market is halting in Estonia and Lithuania which show

positive movements. The housing loan volume +0.14% in Estonia

• The deleveraging continues in Latvia, the housing loan volume -4.7%. Although the new loan

volumes are highest in Latvia, it does not outweigh the write-offs and repayments of the housing

loans.

2013-10-23

-12%

-10%

-8%

-6%

-4%

-2%

0%

2%


Source: National Central Banks

Changes in housing loan portfolio, Y-o-Y

0

50

100

150

200

250



Indexed volume of new housing loans, 2011Q1=100

12

Consumer loan and other borrowing

• Consumer loan and other borrowing continues the downward trend: -20.6% in Latvia, -8.6% in

Estonia and -5.7% in Lithuania

• There are no signs for increasing volumes of new consumer loans in Lithuania, while in Estonia

and Latvia show increase of 13-14%

• Consumers use alternative financing methods (hire purchases)

2013-10-23

0

50

100

150

200



Indexed volume of new consumer credit and other borrowing, 2011Q1=100

-25%

-20%

-15%

-10%

-5%

0%



Changes in consumer credit and other lending portfolio, Y-o-Y

Julita Varanauskienė

SEB LithuaniaSavings and investments

14

Household puzzle in the environment of the low interest rates

REASONING

• To avert the risk of economic depression

• To counter deflationary pressures

• To offset excessive increase in borrowing costs

SIDE EFFECTS

• Depressed returns of safe assets

• Boosted asset prices

TO SAVE?TO CONSUME?

TO BORROW?

TO INVEST?2013-10-23

15

Assets larger than liabilities in Estonia and Latvia – for the first time

• Increase in financial assets of households to a large extent depends on growing income of households and favourable

environment prevailing in the securities markets.

• Estonians – most persistent to accumulate financial assets

• Different pace of increase in financial assets was the result of each country-specific factors: - higher perceived

necessity to save money in Estonia,

-finally improving expectations, which decreased the need of savings for a rainy-day in Lithuania.

-euro introduction expectations in Latvia

Estonia

0

1500

3000

4500

6000

7500

9000

2008 2009 2010 2011 2012 IIQ 2013

Financial assets (mEUR) Liabilities (loans, mEUR)

Latvia

0

2000

4000

6000

8000

10000

12000

2008 2009 2010 2011 2012 IIQ2013


Lithuania

0

2000

4000

6000

8000

10000

12000

2008 2009 2010 2011 2012 IIQ2013


Source SEB estimates

16

Latvians’ “saving image” shaped by cash-to-deposits flows

• Households bring their cash holdings to ensure a smoother currency exchange process

• The situation once observed in Estonia repeats itself in Latvia

• It is doubtful if lower cash-to-deposits ratio persists

2013-10-23

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

Jan Feb Mar Apr May Jun Jul Aug

Source: Central banks

Household deposit dynamics in 2013 (y-o-y)


0%

5%

10%

15%

20%

25%

30%

35%

40%

Source: Central banks

Households' cash to deposits ratio


Upcoming Euro introduction

17

Investments into real estate become more and more attractive as an alternative form of asset accumulation

• Real estate market is getting more and more active

• Expectations of households related to the real estate prices in future are improving

• However, a significant amount of such investment and much higher requirements related to quality of the real

estate does not allow everyone who has such intentions to accumulate savings in such form

Index of real estate (houses and appartments) purchase contracts

(average 1Q2011 = 100)

100

110

120

130

140

150

160

170

180

2011 2012 2013

Estonia* Latvia Lithuania

* all real estate, not limited w ith houses and appartmentsSource: Statistics Estonia, Latio, Oberhaus, SEB estimates

Indicator of housing price expectations

05

101520253035404550

Mar2012

Jun2012

Sep2012

Dec2012

Mar2013

Jun2013

Sep2013

Latvia Lithuania

Source SEB

2013-10-23

18

Low interest rates – not the only criteria for household financial decisions

TO SAVE?

TO CONSUME?

TO BORROW?

TO INVEST?

The strongest positive trend of consumption is observed in Lithuania.

The situation in Latvia is most undetermined.

No major changes related to consumption are expected in Estonia.

Households are still very cautious to

finance their consumption needs

through borrowing. The volume of

mortgage borrowings of Estonian

households will continue to grow .

Lithuanians will follow more gradual

revival. Latvia has not reached the

bottom of the housing volumes yet.

National factors determine higher

perceived necessity to save money

in Estonia. Savings accumulation in

Latvia is pushed by approaching

euro introduction. Improving

situation and expectations in

Lithuania decrease the need to

accumulate new savings.

Interest for alternative saving and investment options will remain rather high. Whereas the overall

saving levels, financial literacy and awareness about more complex financial products and

affordability of investments into real estate remains low, the traditional saving forms will prevail.

2013-10-23

Edmunds Rudzitis

SEB Latvia

What to expect in household

finances?

20

More money in households’ pockets

2013-10-23 20

• The increase in households’ purchasing power is expected to continue as income growth will

outpace the increase in consumer prices

2013-10-23

WAGES

LV 5.5%

LT 4.5%

EE 6%

INFLATION

LV 2.8%

LT 2.8%

EE 2.7%

21

Income and taxation

2013-10-23 21

• Families with children and low-income employees could benefit the most from the planned

decrease in the tax burden on labour

2013-10-23

0 5 10 15 20 25 30 35

350

500

1000

Source: SEB calculations

Gro

ss w

age

(LV

L)Increase in net salary starting January 2014 (EUR)

2 dependants 1 dependant Without dependants

Questions?Baltic Household

Outlook

Business

SEB bankas Baltijas mājsaimniecību apskats