baltic household outlook...surprise!? inflation expectations are falling-60-30 0 30 60 90 01.02...

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


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


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


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



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



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


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


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


Net financial assets per capita (in euros)


Financial assets and liabilities (in million euros)

-4000

-2000

0

2000

4000

6000

8000

10000

12000

2009 2010 2009 2010 2009 2010



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


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)


� 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


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


Expectations regarding price trends over 12 months


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

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baltic household outlook...surprise!? inflation expectations are falling-60-30 0 30 60 90 01.02...

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