OREANDA-NEWS. October 21, 2011. The potential effects of the Eurozone debt crisis and the slow-down of the global economy on the Baltic States have lowered the future expectations of consumers, as shown by the Baltic Household Outlook prepared by SEB. The signs of weaker consumer confidence are evident in Estonia and Lithuania, whereas the Latvians continue to be optimistic regarding their financial situation over the next 12 months, reported the press-centre of SEB.

The economic recovery has increased employment and the income of families to a modest degree; however, there are many households who have not yet benefited from economic growth. Real income has increased in Latvia, while a decline is evident in other countries.

“Higher wages and improving consumer confidence led to an increase in private consumption in Latvia in the first six months of the year. However, lower consumer confidence, high unemployment and increasing costs have a negative effect on consumption”, noted SEB Latvia economist Edmunds Rudzitis.

As compared to the year-end 2008, when the effects of the global financial crisis were evident in the Baltic States, the balance sheets of households have changed significantly. Families are curbing their financial risks, reducing their loan portfolios and increasing the volume of assets.

“The financial vulnerability of Estonian families has decreased because the volume of liabilities has decreased and that of deposits and other assets has increased – the balance sheet of households has improved by almost EUR 2.2 billion as compared to the year-end 2008. However, it should be kept in mind that the improving general indicators do not reveal the whole truth – it can be presumed that the situation of unemployed families has not improved. Changes in the balance sheets of families and bigger financial buffers show that households feel insecure about future financial developments”, stated Triin Messimas, SEB Pank household expert.

Loan-to-savings ratio has improved in Estonia
The loan-to-savings ratio has decreased from 202 per cent to 160 per cent in Estonia, i.e. the loans of households amount to EUR 1600 per each EUR 1000 saved. The Lithuanians have achieved an almost equal volume of loans and savings. However, the Estonians have the largest reserves per capita and the Lithuanians have the lowest debt burden. In Latvia, the volume of savings is at the same level as in 2008 (EUR 4.1 billion), while in Estonia and Lithuania, the indicators have significantly increased, by 17 and 10 per cent, respectively, to EUR 4.5 billion and EUR 7.9 billion.

This can be attributed not only to the difference in the severity of the economic recession, but also to the developments in the countries’ banking sector. Negative shocks did not hit Estonian and Lithuanian banking, and at the same time families were more interested in preventively increasing their savings in credit institutions.

Deteriorating consumer confidence may also be related to the imminent heating season and the related higher costs. When comparing the heating expenses of the three Baltic States, quite a contradictory set of data emerges. Although Lithuania has the fewest number of cold days, it does not mean that the southernmost Baltic State has the lowest heating bills – the cost of thermal energy in Lithuania is the highest in the region.

“Increasing heating bills obviously curb potential consumption. However, it can be expected that despite the estimated hike in thermal energy prices in Lithuania, the trends in the last quarter will be the same as one year ago – higher consumption and more cash in bank accounts. Unless the scenario of the year 2008 repeats itself, characterised by lower future expectations of families, which was more serious than the decline in income and growth in savings”, noted SEB Lithuania economist Julita Varanauskiene.

The Baltic Household Outlook is available for review at: www.seb.ee/BHOoctober2011