seb baltic household outlook. recovery in household finances on track but uncertainty remains
DESCRIPTION
Economic growth has led to an increase in employment and real wages in Estonia and Latvia. The earnings abroad and remittances have added significant amount of funds to the households’ disposable income in all three countries. Nevertheless despite the improvement of situation, the modest consumer confidence in Estonia eliminating the large gap between Estonia and other Baltic countries, supports the strengthening of the households’ balance sheets reflecting in the largest savings of Estonian households, while in Latvia and Lithuania deposits dropped. However demographic situation with low birth rate, population ageing and emigration involves potential long term problems of all Baltic countries with the financing of pension and social system. Under such circumstances the mandatory pension scheme and voluntary private pensions plays a more significant role and can ensure a larger financial security in retirement. These are key findings arising from the newest SEB Baltic Household Outlook.TRANSCRIPT
SEB Baltic Household OutlookApril’2012
Julita Varanauskiene
Triin Messimas
Edmunds Rudzitis
2012-04-18
| SEB Baltic Household Outlook - April'2012 2
A bumpy jobs recovery
The 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%
Latvia Lithuania Estonia
Unemployment rate* (%)
*Persons aged 15-74
Source: National Statistics
-16%
-12%
-8%
-4%
0%
4%
8%
12%
Latvia Lithuania Estonia
Changes in employment (%, Y-o-Y)
Source: National Statistics
2012-04-18
| SEB Baltic Household Outlook - April'2012 3
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%
Source: National Statistics
Latvia Lithuania Estonia
Average gross wages and salaries (%, YoY)
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
Source: National Statistics
Latvia Lithuania Estonia
2012-04-18
| SEB Baltic Household Outlook - April'2012 4
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%
Source: National Statistics
Latvia Lithuania Estonia
Remittances and earnings abroad (including "other sectors") - share of disposable income (%)
0%
3%
6%
9%
12%
15%
18%
Source: Eurostat, SEB calculations
Latvia Lithuania Estonia
2012-04-18
| SEB Baltic Household Outlook - April'2012 5
Household Consumption, Confidence and Leverage
Triin Messimas
SEB Estonia
2012-04-18
| SEB Baltic Household Outlook - April'2012 6
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%
2012-04-18
| SEB Baltic Household Outlook - April'2012 7
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 823-04-08
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.
2012-04-18
| SEB Baltic Household Outlook - April'2012 9
Assessment about financial situation of households is strongest in Estonia and weakest in Latvia
In March 2012:
in Estona 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.
2012-04-18
| SEB Baltic Household Outlook - April'2012 10
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%
2012-04-18
| SEB Baltic Household Outlook - April'2012 11
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%
2012-04-18
| SEB Baltic Household Outlook - April'2012 12
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.
2012-04-18
| SEB Baltic Household Outlook - April'2012 13
Household SavingsJulita Varanauskiene
SEB Lithuania
2012-04-18
| SEB Baltic Household Outlook - April'2012 14
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
Latvia Lithuania Estonia
Deposits II pillar pension funds Private pension funds and life insurance
Latvia Lithuania EstoniaDeposits -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 life insurance
+46% (+118 mEUR) +75% (+155 mEUR) +42% (+76 mEUR)
Source: Central banks
2012-04-18
| SEB Baltic Household Outlook - April'2012 15
Banks’ collapse didn’t affect household behaviour much…
Household deposits change (Jan2008=100)
8090
100110120130140150
2008 2009 2010 2011 2012
Lithuania Latvia Estonia
Source: Central banks
Krajbanka
Snoras
2012-04-18
| SEB Baltic Household Outlook - April'2012 16
… but people are more cautious
Household deposits distribution change in Lithuania (mEUR)
0
1000
2000
3000
4000
5000
6000
Banks withhigher depositinterest rates
Banks withmiddle depositinterest rates
Banks withlower depositinterest rates
Credit unions State bonds
September 2011 January 2012
Sources: Central bank, Bankers' association, Central depository www.indeliai.lt, SEB estimatesNB "Snoras" deposits not includet in September 2011 statistics
-12%+6%
+18%
+9%+23%
2012-04-18
| SEB Baltic Household Outlook - April'2012 17
Largest savings of Estonian households, lowest loan-to-deposit ratio of Lithuanian households
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
Latvia Lithuania Estonia
Deposits per capita (EUR) Loans per capita (EUR)
Source National banks
2012-04-18
| SEB Baltic Household Outlook - April'2012 18
What about the future?Edmunds Rudzitis
SEB Latvia
2012-04-18
| SEB Baltic Household Outlook - April'2012 19
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
2012-04-18
| SEB Baltic Household Outlook - April'2012 20
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
Source: National Statistics
Latvia Lithuania Estonia
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
2012-04-18
| SEB Baltic Household Outlook - April'2012 21
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
Latvia Lithuania Estonia
The total dependency ratio
30
40
50
60
70
80
90
2011 2020F 2060F
Source: National Statistics;Eurostat;SEB estimations
Latvia Lithuania Estonia
2012-04-18
| SEB Baltic Household Outlook - April'2012 22
Thank You!
Questions?