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11
April 2011
Baltic Household Outlook
22
Spirits are up againHardo PajulaSEB Estonia
3
Confidence indices have nicely rebounded in all three countries. Estonia is currently in the European top pack, Lithuania still slightlybelow the EU average and even Latvia which in the second half of2009 had the lowest confidence index is coming back.
Source: Ecowin
Confidence indices
60
80
100
120
1994 1998 2002 2006 2010
Lon
g-t
erm
ave
rag
e =
100
Estonia Latvia Lithuania
444
Consumption is rebounding
Household consumption expenditure (%, YoY)
-30.0%
-25.0%
-20.0%
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
Source: National Statistics
Latvia Lithuania Estonia
555
The challenge of a jobs creation
� Compared to the lowest point of 2010, employment rebounded by 7.1% in Estonia, 3.8% in Latvia and 2.9% in Lithuania.
� The largest drop in unemployment registered in Estonia.
2
4
6
8
10
12
14
16
18
20
22
1Q07
2Q07
3Q07
4Q07
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
Latvia Lithuania Estonia
Unemployment (job-seekers) rate* in Baltics (%)
* Persons aged 15-74 Source: National Statistics
-16.0%
-12.0%
-8.0%
-4.0%
0.0%
4.0%
8.0%
1Q07
2Q07
3Q07
4Q07
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
Latvia Lithuania Estonia
Changes in employment (%, Y-o-Y)
Source: National Statistics
666
Incomes lag
� Wage gap between Estonia and other Baltic countries has increased.
� Positive trends has already seen in gross wage statistics in all three Baltic states.
Average gross wages and salaries (%, YoY)
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
Source: National Statistics
Latvia Lithuania Estonia
Real wages (%, YoY)
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
Source: National Statistics
Latvia Lithuania Estonia
77
Households are saving and deleveragingEdmunds Rudzitis
SEB Latvia
8
Financial assets structure and dynamics (in million euros)
2000
4000
6000
8000
10000
12000
2009 2010 2009 2010 2009 2010
Estonia Latvia Lithuania
Source: SEB estimates
Other f inancial assetsPensions and life insurance savingsDeposits
Financial safety cushion continue to increase
Deposits per capita(in euros)
0
1000
2000
3000
4000
2009 2010 2009 2010 2009 2010
Estonia Latvia Lithuania
Source: Central banks
� Due to low interest rates term deposits have lost attractiveness.� Households are also looking for investment opportunities with higher yields.
9
From time to demand deposits
1400
1700
2000
2300
2600
Jun-2
008
Dec-20
08
Dec-20
09
Dec-20
10
Demand Term&savings
Household deposits in Estonia (in million euros)
Source: Bank of Estonia
2000
3000
4000
5000
6000
Jun-2
008
Dec-20
08
Dec-20
09
Dec-20
10
Demand Term&savings
Household deposits in Lithuania (in million euros)
Source: Bank of Lithuania
1000
1500
2000
2500
3000
Jun-2
008
Dec-20
08
Dec-20
09
Dec-20
10
Demand Term&savings
Household deposits in Latvia(in million euros)
Source: Bank of Latvia
� Due to low interest rates growth was registered in demand deposits rather than time deposits.
10
Households are saving and deleveraging at the same time
� Estonians may outpace Latvians this year.
-3000
-2500
-2000
-1500
-1000
-500
0
500
1000
2008 2009 2010
Latvia Lithuania Estonia
Net financial assets per capita (in euros)
Source: SEB estimates
Financial assets and liabilities (in million euros)
-4000
-2000
0
2000
4000
6000
8000
10000
12000
2009 2010 2009 2010 2009 2010
Estonia Latvia Lithuania
Source: SEB estimates
Financial assets
Financial liabilities
Financial balance
� In Latvia and Estonia net financial assets are still negative.
11
Changes in borrowing behavior still insignificant
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
4Q20
08
1Q20
09
2Q20
09
3Q20
09
4Q20
09
1Q20
10
2Q20
10
3Q20
10
4Q20
10
Estonia Latvia Lithuania
Household loan portfolio changes (y-o-y)
Source: Central Banks
1212
Biggest threat – food priceJulita Varanauskiene
SEB Lithuania
13
New loans are of good quality
Share of customers who timely pay loan installments by the year the loan was issued
93,8%94,9%
93,5% 93,4%92,0%
87,8% 87,1%
89,1%
94,6%
98,5%
80%
82%
84%
86%
88%
90%
92%
94%
96%
98%
100%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Source: SEB bank (Lithuania)
14
Inflation is back
Consumption expenditure structure of households* (%)
25.4 26.6 24.2
16.3 12.9 17.7
13.311.5
13.2
45.0 49.0 44.9
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Latvi
a
Lithu
ania
Estonia
*CPI weightsSource: National Statistics
Food and beverages Housing
Transport Other
90
100
110
120
130
140
150
Jan.
05
J�l.0
5
Jan.
06
J�l.0
6
Jan.
07
J�l.0
7
Jan.
08
J�l.0
8
Jan.
09
J�l.0
9
Jan.
10
J�l.1
0
Jan.
11
Latvia Estonia Lithuania
Consumer price index in Baltics (2005=100)
Source: National Statistics
� Rising food and energy prices are pushing up inflation in Baltic states.
� Share of necessary expenses (food, housing, transport) in the household budget has grown.
15
Are high food prices good or bad?
Export and import of agricultural and food products (in million euros)
1161
2661
836
1277
2201
1022
-117
459
-186-200
200
600
1000
1400
1800
2200
2600
3000
Latvi
a
Lithu
ania
Estonia
Source: National Statistics
Export Import Net balance
� Although the food price increase negatively affects the purchasing power of households, agricultureand food production industries can benefit from the upward trend of food prices.
� 27% increase in Estonia, followed by Latvia (23%) and Lithuania (22%). At the same time, import increased at a slower pace.
� Despite strong food export growth, Estonia and Latvia are still net food importers. Only Lithuania is net food exporter.
16
Current threat for household purses –price increase
-60
-40
-20
0
20
40
60
80
2008 2009 2010 2011
Estonia Latvia Lithuania
Expectations regarding price trends over 12 months
Source: National Statistics
17
Lithuania is the cheapest food country in Baltics (Poland excluded)
Price levels for food (Lithuania 2009=100, in PPP)
0
20
40
60
80
100
120
140
Bread
and
cerea
ls
Meat
Fish an
d sea
food
Milk, c
heese
and e
ggs
Oils an
d fats
Fruits
and v
egeta
bles
Food
Source: European Commission
Lithuania Latvia Estonia Poland
18
Prices, income and national cuisine determines household diet
Consumer expenditure on different foods (2009)
0
20
40
60
80
100
120
140
Bread
and
Cer
eals
Meat
Fish an
d Sea
food
Milk, C
hees
e and
Eggs
Fruit a
nd V
egeta
blesSug
ar and
Con
fectio
nery
Sweets
Source: National Statistics, Eurostat, SEB estimates
Lithuania Latvia Estonia
19
Local household behavior also may influence price
Sugar price dynamics in Lithuania (Eur/kg)
0.60
0.70
0.80
0.90
1.00
1.10
1.20
1.30
1.40
2009 2010 2011
Low High
Source: National statistics
2020
100 days with euroHardo PajulaSEB Estonia
21
Surprise!? Inflation expectations are falling
-60
-30
0
30
60
90
01.02 11.02 09.03 07.04 05.05 03.06 01.07 11.07 09.08 07.09 05.10 03.11
net b
alan
ce o
f res
pond
ents
, %
Consumer confidenceUnemployment expectationsInflation expectations
Consumer survey results
Source: Estonia Statistics
22
Balance of payments shifts intosurplus
-600
-400
-200
0
200
400
600
800
1000
01.06 01.07 01.08 01.09 01.10 01.11
EURm
FDI Financial account Overall balance
2323
Thanks!Questions?