The document summarizes labor market and economic trends in the Baltic countries. It finds that while unemployment has declined significantly from crisis peaks, the jobs recovery is slowing. Wages are rising as productivity increases, though real wage growth varies by country. Household consumption is supported by remittances from workers abroad. Consumer confidence declined sharply in Estonia but has been stable or increasing in Latvia and Lithuania. Households continue deleveraging but some are taking advantage of low interest rates on housing loans.

1. Julita Varanauskiene
SEB Baltic Household Outlook Triin Messimas
April’2012 Edmunds Rudzitis

2. A bumpy jobs recovery
The Baltics posted the largest fall in Changes in em ploym ent (%, Y-o-Y)
unemployment among EU countries. 12%
A long way to return to pre-crisis 8%
levels.
4%
Unem ploym ent rate* (%)
24% 0%
20% -4%
16% -8%
-12%
12%
-16%
8%
3Q 7
2Q 8
4Q 8
1Q 8
3Q 9
4Q 9
2Q 0
3Q 0
1Q 0
4Q 1
2Q 7
07
1Q 7
3Q 8
09
09
10
11
3Q 1
11
0
0
0
0
0
0
1
1
1
1
0
0
0
1
1Q
4Q
2Q
1Q
4Q
2Q
4% Latvia Lithuania Estonia
Source: National Statistics
0%
Baltic economies has regained a part
2Q 7
1Q 7
2Q 8
3Q 8
2Q 9
3Q 9
2Q 0
3Q 0
3Q 1
4Q 1
07
4Q 7
4Q 8
1Q 8
09
1Q 9
10
1Q 0
2Q 1
11
0
0
0
0
0
0
1
1
1
1
0
0
0
0
1
1
1Q
3Q
4Q
4Q
Latvia Lithuania Estonia
of lost jobs, however the jobs market
*Persons aged 15-74
Source: National Statistics recovery loses momentum.
2012-04-18 | SEB Baltic Household Outlook - April'2012 2

3. More money in the pockets of workers
Wages rise as productivity increases. Real w ages (%, YoY)
12%
In Estonia the fastest labour income
growth. 8%
Average gross w ages and salaries (%, YoY)
4%
30%
25% 0%
20%
-4%
15%
10%
-8%
5%
0% -12%
08
08
09
10
10
11
11
08
09
09
09
10
10
11
11
2Q
3Q
4Q
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
-5%
-10% Latvia Lithuania Estonia
Source: National Statistics
-15%
08
08
09
09
10
10
11
11
11
08
08
09
09
10
10
11
Real wages up in Estonia and Latvia,
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
Latvia Lithuania Estonia
while Lithuanians’ real earnings have
Source: National Statistics decreased already for 3 years.
2012-04-18 | SEB Baltic Household Outlook - April'2012 3

4. Consumption supported by earnings abroad
In 2011 household consumption rose Rem ittances and earnings abroad (including "other
sectors") - share of disposable incom e (%)
by 6.1% in Lithuania and 4.4% in 18%
Estonia and Latvia. 15%
Household consum ption expenditure (%, YoY)
12%
15%
10% 9%
5%
6%
0%
-5% 3%
-10%
0%
-15%
02
06
00
01
03
04
05
07
08
09
10
20
20
20
20
20
20
20
20
20
20
20
-20%
Latvia Lithuania Estonia
-25%
Source: Eurostat, SEB calculations
-30%
The remittances (incl. earnings
08
08
08
09
10
11
11
11
08
09
09
09
10
10
10
11
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
Latvia Lithuania Estonia abroad) have increased the
Source: National Statistics households’ disposable income.
2012-04-18 | SEB Baltic Household Outlook - April'2012 4

5. Household Consumption, Triin Messimas
Confidence and Leverage SEB Estonia
2012-04-18 | SEB Baltic Household Outlook - April'2012 5

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 6

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 7

8. 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
1 2 - 04- 1 8 8

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 9

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 10

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 11

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 12

13. Julita Varanauskiene
Household Savings
SEB Lithuania
2012-04-18 | SEB Baltic Household Outlook - April'2012 13

14. Household savings structure: deposits still
dominate
5 000 Deposits and pension savings per capita (EUR)
D eposits II pillar pension funds Private pension funds and life insurance
4 000
3 000
2 000
1 000
0
2008 2011 2008 2011 2008 2011
Latvia Lithuania Estonia
Latvia Lithuania Estonia
Deposits -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 +46% (+118 mEUR) +75% (+155 mEUR) +42% (+76 mEUR)
life insurance
Source: Central banks
2012-04-18 | SEB Baltic Household Outlook - April'2012 14

15. Banks’ collapse didn’t affect household
behaviour much…
Household deposits change (Jan2008=100)
Lithuania Latvia Estonia
150
140 Snor as
130
120
110
100
90
80
2008 2009 2010 2011 2012
Kr aj ban
Sour Cental banks
ce: r ka
2012-04-18 | SEB Baltic Household Outlook - April'2012 15

16. … but people are more cautious
Household deposits distribution change in Lithuania
( mEUR)
Septem ber 201 1 Januar 201 2
y
6000
+ 1 8%
5000
4000
3000
2000
-1 2%
1 000 + 6% + 9%
+ 23%
0
Banks with Banks with Banks with Credit unions State bonds
higher deposit m iddl deposit
e lower deposit
interest rates interest rates interest rates
Sources: Cent albank, Banker associat
r s' ion, Cent aldeposit y www.indel t SEB est
r or iai.l, imates
NB "Snoras" deposit notincl
s udetin September2011 st ist
at ics
2012-04-18 | SEB Baltic Household Outlook - April'2012 16

17. Largest savings of Estonian households, lowest loan-
to-deposit ratio of Lithuanian households
Loans and deposits per capita (Eur)
Deposits per capita(EUR) Loans per capita(EUR)
6.000
5.000
4.000
3.000
2.000
1 .000
0
1 H201 1 2H201 1 1 H201 1 2H201 1 1 H201 1 2H201 1
Latvia Lithuania Estonia
So ur c e Nat i o nal b anks
2012-04-18 | SEB Baltic Household Outlook - April'2012 17

18. Edmunds Rudzitis
What about the future? SEB Latvia
2012-04-18 | SEB Baltic Household Outlook - April'2012 18

19. What’s ahead for 2012?
OR
• 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.
2012-04-18 | SEB Baltic Household Outlook - April'2012 19

20. Demographics and the future workforce
The pace of population ageing will Population structure by age groups in 2011 and 2020
(Latvia)
accelerate in the Baltic countries. 2020 80+ 2011
75-79
Crude birth rate (per 1000 inhabitants)
70-74
16
65-69
60-64
55-59
14 Children are our future 50-54
45-49
40-44
35-39
12
30-34
25-29
20-24
10 15-19
10-14
5-9
0-4
8
200 000 0 200 000
Source: CSB, SEB estimates
6
Over the next 10 years the number of
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Latvia Lithuania Estonia working age people will decrease
Source: National Statistics
significantly.
2012-04-18 | SEB Baltic Household Outlook - April'2012 20

21. Population ageing and pension system
The pension system are facing The ratio of old-age pension to net w age
challenges. The total dependency 60%
ratio will grow considerably.
55%
The total dependency ratio
90
80 50%
70
45%
60
40%
50
IVQ2008 IV2011
Latvia Lithuania Estonia
40
Source: National Statistics; SEB estimations
30 Is decline in replacement ratios
2011 2020F 2060F
Latvia Lithuania Estonia
imminent?
Source: National Statistics;Eurostat;SEB estimations Larger support to long-term savings.
2012-04-18 | SEB Baltic Household Outlook - April'2012 21

22. Thank You!
Questions?
2012-04-18 | SEB Baltic Household Outlook - April'2012 22