- Political stability
- Fiscal affairs
- Monetary policy
- Regulated markets
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- Macroeconomic developments
Savings and consumption during crisis
submited on 28.11.2008 in category Political stability | Fiscal affairs | Monetary policy | Regulated markets | Privatisation | Macroeconomic developments | Political stability | Fiscal affairs | Monetary policy | Regulated markets | Privatisation | Macroeconomic developments
submited on 28.11.2008 in category Political stability | Fiscal affairs | Monetary policy | Regulated markets | Privatisation | Macroeconomic developments | Political stability | Fiscal affairs | Monetary policy | Regulated markets | Privatisation | Macroeconomic developments
Considering the recent signs for more tangible reflection of the global financial crisis on the real economy in Bulgaria, at least for now its impact on consumer sentiment seems rather limited. Whereas in the October business the NSI registered the biggest monthly decline (by 4.6 points) of the composite business climate indicator for the last two years, for the first time since July last year households improve their assessment of the current situation in the context suitable/ not suitable for saving (according to the October survey of consumer confidence). In the same time consumers declare accelerated expectations for the purchase of long-term assets, such as housing or car.
Meanwhile the regular survey of personal wealth in Bulgaria, conducted by Industry Watch, shows that although at decelerating rate, the household financial wealth continue to expand – at 16% annually as of end-September. This growth rate is mainly due to the growth of banking deposits, which are often the one and only saving instrument. Hence, one of the probable explanations for the optimism, found in the NSI survey, is the increasing interest rates on deposits and the raising of the government guarantees on them together with the wage growth.
The effects of the financial crisis will probably begin to reflect on the behavior of households as economic agents in the following potential transmission mechanisms:
Change in the labor market conjuncture, leading to job losses or reduction of the labor income (wage or bonuses).
Unfavorable price dynamics on the capital market and the housing market, leading to decline in the value of the certain assets and destruction of wealth. However, Bulgarian households are and will be much less affected by the stock exchange contraction since Bulgarians have invested only 12% of their financial wealth in speculative instruments (this ratio is 66% in the Euro area).
Unfavorable development on the credit market, reflecting more difficult access to credit resource (due to raising credit standards and/or decline in the value of collateral) and rising interest rates on credit.
The deepening of the global financial crisis and its negative effects on the Bulgarian economy will probably lead to gradual change in the models of individual consumption and saving. We expect the dynamics of consumption to gradually begin to decline, especially with regard to possible income reduction of income and the credit resource, which have until now supported its high level. We expect more active saving with precautionary motive, which is typical in a situation of increasing uncertainty of future employment and income.
Meanwhile the regular survey of personal wealth in Bulgaria, conducted by Industry Watch, shows that although at decelerating rate, the household financial wealth continue to expand – at 16% annually as of end-September. This growth rate is mainly due to the growth of banking deposits, which are often the one and only saving instrument. Hence, one of the probable explanations for the optimism, found in the NSI survey, is the increasing interest rates on deposits and the raising of the government guarantees on them together with the wage growth.
The effects of the financial crisis will probably begin to reflect on the behavior of households as economic agents in the following potential transmission mechanisms:
Change in the labor market conjuncture, leading to job losses or reduction of the labor income (wage or bonuses).
Unfavorable price dynamics on the capital market and the housing market, leading to decline in the value of the certain assets and destruction of wealth. However, Bulgarian households are and will be much less affected by the stock exchange contraction since Bulgarians have invested only 12% of their financial wealth in speculative instruments (this ratio is 66% in the Euro area).
Unfavorable development on the credit market, reflecting more difficult access to credit resource (due to raising credit standards and/or decline in the value of collateral) and rising interest rates on credit.
The deepening of the global financial crisis and its negative effects on the Bulgarian economy will probably lead to gradual change in the models of individual consumption and saving. We expect the dynamics of consumption to gradually begin to decline, especially with regard to possible income reduction of income and the credit resource, which have until now supported its high level. We expect more active saving with precautionary motive, which is typical in a situation of increasing uncertainty of future employment and income.
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