Latvians and Lithuanians are more pessimistic about the future, than Estonians

The Baltic Course
Nina Kolyako, BC,

In the present economic crisis situation, Estonian already see “the light at the end of the tunnel”, whereas Latvians and Lithuanians are more pessimistic about the future, reveals the latest Gfk Consumer Confidence Barometer, published in the newspaper Diena, which measures the level of confidence households have in the economies of their respective countries.

The index, showing the residents’ overall outlook to the economy situation, dropped from 72 to 67 in Latvia in one year’s time, in Lithuania the index is 67 as well, whereas in Estonia it currently at 75 points.

Senior economist at Swedbank, Martins Kazaks, points out that Estonia is one to two quarters in front of Latvia in the economic development cycle. “If they act considerately and focus on productivity, they will be able to exit the recession phase sooner and their growth will be more rapid.” However, the expert points out that the external economic shock has not finished yet – export markets grow slower and attracting financing becomes more expensive.

The survey, carried out in July, reveals that only one fifth of those polled in all three Baltic States admit that their economic situation has improved in the past month’s time. The same, only one fifth are hopeful that their quality of life will start to improve before the end of this year. 40 to 50% of all residents of the Baltic States admit that their material position has significantly worsened in the past six months’ time, 30 to 40% say it will become worse in the half year’s time.

Lithuanians are quite sure that they will have to face price hikes in the next half year, whereas Estonians are more confident that the high inflation growth has already been left behind.

However, half of Lithuanians are confident that this year and in the first half of this year, they will be able to make some savings. In Estonia, 35% share this opinion, in Latvia – 29%. In Gfk expert’s opinion, Estonians could be motivated to make savings for the purpose of security, whereas Lithuanians probably simply have an optimistic outlook about their chances to make savings.

On the other hand, in Latvia people are more optimistic about possible increased salaries; the Baltic neighbors are more skeptical in this regard. Kazaks explains this with the fact that in recent years, salaries in Latvia have been growing more rapidly than in Estonia and in Lithuania, and people have gotten the impression that it will go on like that forever. “However, there are no reasonable grounds to increase salaries while productivity does not grow – in such case salary rise is only possible for a short time.”

The expert prognosticates that next year the salary growth rate will be outpaced by inflation, therefore in some companies salaries could even decrease – if enterprises have to choose between reducing the number of employees or reducing their salaries.
Only one third of people polled in Latvia and Estonia consider this to be a good time for purchasing an apartment, land, car or furniture. Lithuanians are more optimistic regarding this matter.

Due to the surging prices and worsening economic situation in the country, people in Latvia are looking for cheaper options, when making purchases. In July, more respondents admitted they were planning to cancel their travel plans, holiday entertainment and shopping tours, eating out, beauty treatment procedures and even driving car.

Head of Gfk Baltic, Iluta Skruzkalne, suggests entrepreneurs continue investing in marketing. “The recession does not mean that people stop buying things all together. It is only that they give up purchases they do not essentially need, they postpone buying, make purchases slower to choose the best value for their money.”

Gfk Consumer Confidence survey’s indexes above 100 reveal strong trust in the country’s economy and the community’s optimism. The highest index was attained in 1968, in the U.S., when it was at 176.8 points.

In January 2008 the Gfk index in the U.S. was 87.9 points, in April – 62.3, in July – 51.9. This year in Latvia the index was 71.63 in January, 71.8 in April and 67 in July.