OREANDA-NEWS. April 22, 2011. The SEB Baltic Household Outlook indicates that the real earnings of Estonian, Latvian and Lithuanian families will increase very slowly or remain unchanged in 2001 due to the increasing inflation, reported the press-centre of SEB.

The economy of the Baltic States recovered last year mainly due to export and private consumption. Foreign demand made the recovery faster than expected at the start of the year, which means that the outlook for 2011 is rather optimistic.

“The economic growth, which arises from the decrease in unemployment and a moderate increase in salaries, and is based on export, is reflected in the financial situation of Baltic households,” said SEB Pank’s economist Hardo Pajula. “However, increasing food and energy prices will put household budgets under pressure again. The increase in the percentage of food, home and transport expenses suggests that the outlook of households has worsened. The difference in wages in Estonia and the other Baltic States is increasing at the same time.”

In Pajula’s words, the analysis also shows that households are looking for more profitable investment opportunities or keeping their money in current accounts, as term deposits are no longer attractive due to low interest rates.

Employment
Baltic economies started to recover in 2010 with the support of growing export, which slowed down the increase in unemployment and led to a growth in employment. The largest drop in unemployment was registered in Estonia, where the number of jobseekers decreased by approximately six percentage points from its peak in the first quarter of 2010. The rate of unemployment also decreased in Latvia and Lithuania. Total employment is increasing slowly at the same time. Compared to the lowest point in 2010, employment increased by 7.1 percent in Estonia, 3.8 percent in Latvia and 2.9 percent in Lithuania. The growing number of long-term unemployed is one of the consequences of the recession. The average unemployment rate in Estonia may drop to 12 percent this year. The rate of unemployment is decreasing relatively slowly in Latvia and Lithuania at around 16 percent.

Wages
The increase in the number of employed people improves the financial situation of households and some positive trends can already be seen in wage and salary statistics. The largest increase occurred in Estonia: average wages rose by 3.9 percent compared to the fourth quarter of 2009. In Latvia and Lithuania, wages increased by 3.4 and 0.2 percent, respectively. In the last quarter of 2010, average wages reached 814 euros in Estonia, 647 euros in Latvia and 614 euros in Lithuania. Wages will continue increasing this year, primarily in export-oriented industries.

Consumption
Consumption will pick up in line with the decrease in unemployment and the increase in consumer confidence. Baltic households are more optimistic about their overall economic and financial situation than a year ago. Household consumption is expected to increase by three percent in 2011 despite the negative factors that influence private consumption. The share of food, housing and transport in household budgets has increased in the Baltic States and comprises more than a half of the total consumption expenditure.

Financial assets
The total amount of new loans is still smaller than the total loan repayments of private persons. Net financial assets have increased in all three Baltic States due to the increase in financial assets and decrease in liabilities. The fastest growth was observed in Estonia (14 percent). The value of financial assets in Latvia and Lithuania increased at the same pace (seven percent). The net financial assets of Latvian and Estonian households were negative at the end of 2010 (minus two billion and minus 1.5 billion euros, respectively), although the negative margin (liabilities exceeding assets) decreased steadily. In Lithuania, the value of net financial assets remained positive. Household deposits increased in all three countries in 2010 with a significant increase observed in the last quarter. Low interest rates meant that demand deposits increased more than term deposits.