OREANDA-NEWS. May 03, 2012. Economic growth has increased employment and real salaries in both Estonia and Latvia. Monies earned abroad and transferred back home have contributed to the increase of incomes in all of the Baltic Republics, reported the press-centre of SEB. 

Nevertheless, despite the improvement of the situation, the modest security of consumers in Estonia lowers the differences between Estonia and other countries, noted the economic analysis of Baltic households prepared by SEB (Baltic Household Outlook).

Although in Estonia, the feeling of security among consumers is higher than the average in the EU (the index is respectively 12.9 and 19.3), the difference between Estonia and the other Baltic Republics decreased due to the European debt crisis at the end of 2011. The feeling of security among Latvian and Lithuanian households was comparable to the European average, respectively 18.1 and 21.3.

Triin Messimas, development manager of private loans at SEB, said that although household income and employment are improving, the modest level of security among consumers could be explained by the curbed economic perspectives of the Baltic Republics due to the debt crisis in Europe. This also lowers the willingness of people to make high-cost purchases.

The weaker feeling of confidence among consumers is helping to improve the household balances in Estonia – Estonia has the highest amount of bank deposits in the Baltic Republics, albeit the loans per person are also the highest. Julita Varanauskiene, household economist at SEB Lithuania, said that in the second half of 2011 the amount of household deposits in Estonian banks grew by 4.6 per cent, whilst dropping in Latvia and Lithuania, respectively by 0.5 and 2.2 per cent.

According to SEB’s analysts, the decrease in and the ageing of the population will have a negative effect on the sustainability of the pension system and labour market. Within the next ten years, the number of people of working age may decrease in Latvia by ten per cent and in Estonia and Lithuania by eight per cent.

The assets in the second pillar of the pension fund will also grow at a slower rate due to the economic crisis and increasing social budget deficit. In the second half of 2011, the value of second pension pillar funds per client was EUR 1600 in Estonia, while in Lithuania and Latvia it was 30 per cent lower, respectively EUR 1110 and EUR 1080.

Edmunds Rudzitis, household economist at SEB Latvia: “If the payments into the second pillar of the pension fund and money flows into the third pillar remain at the current low level, future pensioners can expect a drastic drop in their living standard. Therefore, it is important for tax policy to be used to promote long-term saving and contribute to the collecting of pension assets.”

The Baltic Household Outlook is available for review here: www.seb.ee/BHO_aprill_2012