OREANDA-NEWS. October 12, 2010. The Baltic Household Outlook, a financial analysis of households conducted by SEB in the Baltic States, indicates that residents of the region are likely to see a slight rise in their salaries in 2011, but also a rise in the cost of food and housing, reported the press-centre of SEB.

The financial position of households in Estonia, Latvia and Lithuania has depreciated more than in other European countries over the last two years, and despite the fact that the Baltic States have now seen the back of the recession, this position worsened further in the first half of 2010 – total income for households decreased, while the prices of consumer goods and services increased and unemployment rates reached record levels.


The following are just some of the conclusions drawn from the financial analysis:

In the wake of the sharp decline of the last two years, forecasters are predicting weak growth in the incomes of households in the Baltic States, alongside an increase in costs.

Private consumption is likely to grow in 2011, since pessimism among Baltic consumers in regard to the future has decreased.

The fact that they enjoy the highest average incomes and that the country is adopting the euro in the new year mean that Estonians are more optimistic than their neighbours.

The net financial position of households in the three Baltic States is improving, despite the fact that the net asset value of household assets in Estonia and Latvia remains negative.

Low interest rates are encouraging people to keep their money in settlement accounts rather than deposits or other long-term savings.

Unemployment remains one of the biggest problems facing all three Baltic States, with the proportion of job-seekers far outweighing the European average. The highest rate of unemployment, at almost 20%, is to be found in Latvia. Companies currently have no need to recruit large numbers of new employees, since they can instead simply increase the workload of their existing staff. As such, neither a marked nor a rapid improvement in the labour market situation is anticipated.

The Baltic States are characterised by the fact that a large proportion of their financial assets are held in deposits and relatively little in pension funds. Lithuania is the exception here, in that households have more financial assets than obligations (with the difference being almost 2 billion euros); Latvian and Estonian households have more obligations than assets.

The highest average gross salary in the Baltic States in Q2 was in Estonia (EUR 822) followed by Latvia (EUR 632) and Lithuania (EUR 595). The ranking was the same in the field of pensions: the average old-age pension in Estonia was EUR 305, followed by EUR 250 in Latvia and EUR 216 in Lithuania.

20% decrease in quarterly incomes for Estonian households
The incomes of Estonian households have decreased significantly. In just 18 months the quarterly incomes obtained from the labour market of households in the country decreased by around 300 million euros – almost a fifth. Unfortunately, the latest developments on the labour market are making it difficult for forecasters to predict any sudden changes in these circumstances. Unemployment is falling at a much slower rate than SEB projected in spring – and although it is coming down, its progress is sluggish compared to previous quarters.

The average salary in Estonia in Q2 increased for the first time since 2008. Nevertheless, it appears that a longer period of structural unemployment lies ahead for the country, with a shortfall in labour in certain sectors and an excess of job-seekers in others.

Households continue to have more debts than financial assets, although the gap between them has closed somewhat in recent quarters. Whereas in the final phase of the economic boom assets were outstripped by obligations to the value of 3.4 billion euros, this figure had fallen to 2 billion euros by June 2010. As the key position on Estonia’s financial markets is held by universal banks, they remain the primary providers of financial assets and obligations. In general it can be said that the significant change in the financial situation of Estonian households between 2004 and 2008 was due to the rise of the modern banking system, which only added to the growing wave of the global credit cycle.