- Political stability
- Fiscal affairs
- Monetary policy
- Regulated markets
- Privatisation
- Macroeconomic developments
Economic overview of 2007
submited on 20.12.2007 in category Political stability | Fiscal affairs | Monetary policy | Regulated markets | Privatisation | Macroeconomic developments
submited on 20.12.2007 in category Political stability | Fiscal affairs | Monetary policy | Regulated markets | Privatisation | Macroeconomic developments
Public finance
On a macro level remained the question to what extent the government got used to making not anti-crisis budgets, but rather budgets in a state of rapidly developing economy. The regular growth of revenue accumulation and the realized significant surpluses in the recent years put a reasonable doubt into that. In 2007 as well, according to our forecasts revenues will be outperformed by some BGN 2.5 billion, as up to October they grew at some 20% relative to 2006.
We must add to this the effect of the tax base expansion due to some tax rates’ reduction (corporate and social insurance) – a paradox to those, who count every tax rate reduction as a loss in the budget. In the same time, the economy grows at 14% in nominal terms, wages at almost 20% a year, and this leads to ? higher tax base.
From the total risk perspective, the government decreased the public debt to size around the level of the fiscal volume. This way its net level is around zero – a remarkable achievement in the EU.
Labor market
Employment continued to improve by some 150 thousand new working places annually. This is in line with our expectations, as it confirms the good macroeconomic dynamics throughout the year. Although the public sector shrinks very slowly, the private sector is now employer of almost ¾ of the total number of the employed in Bulgaria. However, in the state-monopolized spheres are working almost half a million people.
Wages accounted for a record high growth throughout the past year. As pace of growth the NSI data coincides with our valuations – some 20% wage growth of the most common working positions. As wage levels, however, differences remained considerable, as we state that the official statistics underestimates wages by between 30 and 50% in major Bulgarian cities.
Asset prices
Prices of housing real estate continued to pick up in 2007, as the average rate up to the moment is around 30%, as compared to a year earlier. We must note however, that the main contribution to this result is internal housing demand, whereas prices in resorts, where buyers are predominantly foreigners, stagnated. On its account, this structure of demand allowed for the market to grow, irrespectively of the mortgage crisis in the US and the following global demand contraction under rising interest levels.
The value of stocks up to this moment is around 30% higher than end-2006. On the stock exchange however we witnessed a “correction” – with the growth being almost 60% until the beginning of the fall, throughout recent months we saw a distinctive decline of some 20%.
The overall trend is for a faster asset price growth, as compared to consumer prices, despite the “hot” media and political theme of inflationary 2007.
Consumer prices
The average annual inflation up to November (as measured via NSI’s CPI) is 7.9% or a little more than it was in 2006. Consumers experienced higher food prices due to the global inflationary reasons. In the same time prices of services in the country continued to rise as a consequence of the more rapid price of labor growth relative to the EU.
The finance industry
Bank intermediation continued to deepen, as the ratio of bank assets to GDP almost reached 100%. Despite the undertaken by BNB new monetary restrictions, the credit activity remained high – annual growth of private non-financial sector credit is 59.1% as of end-October. In difference with previous years, the corporate credit expansion began to overtake the one in the household segment. In the same time, mutual funds remained the most dynamically developing segment of the finance industry. Financial services’ is one of the markets, upon which the EU membership is expected to reflect most tangibly – due to the opening of the market and the principle of the “single passport”. This can be seen in the following impressing balance: up to the mid-December interest toward development of activity in Bulgaria have declared 162 life insurers, 406 insurance brokers and agents, 360 investment intermediaries, 18 collective investment vehicles and 2 asset management companies from EU countries.
The pension industry capitalization grew to BGN 2.16 billion as of end-September (57% annual growth). The number of insured in private pension funds (in all three segments) exceeded 3.3 million. Strong impact over the pension savings’ expansion exerted positive labor market developments (improving employment, including due to reduction of shadow economy). The base, upon which pension contributions are calculated, also increased, as the growth in the average wage was combined with raising the size of the additional mandatory pension insurance to 5%.
Investments and “external risks”
Other macroeconomists continued to be worried by the growth of the Bulgaria’s current account deficit – by around EUR 2.3 billion in the year to October or 65% growth. They failed to acknowledge that the financial account result – indicative of the investment inflow – increased by EUR 4.3 billion or 88% more. Investments will continue to come into the country as resources and production facilities, which is “import” in the current account. In the same time, investments in fixed capital increased by 25% in real terms in the year to September. Only keeping the foreign capital inflow will allow for maintaining growth of investments in the economy at the rates, registered in 2007.
On a macro level remained the question to what extent the government got used to making not anti-crisis budgets, but rather budgets in a state of rapidly developing economy. The regular growth of revenue accumulation and the realized significant surpluses in the recent years put a reasonable doubt into that. In 2007 as well, according to our forecasts revenues will be outperformed by some BGN 2.5 billion, as up to October they grew at some 20% relative to 2006.
We must add to this the effect of the tax base expansion due to some tax rates’ reduction (corporate and social insurance) – a paradox to those, who count every tax rate reduction as a loss in the budget. In the same time, the economy grows at 14% in nominal terms, wages at almost 20% a year, and this leads to ? higher tax base.
From the total risk perspective, the government decreased the public debt to size around the level of the fiscal volume. This way its net level is around zero – a remarkable achievement in the EU.
Labor market
Employment continued to improve by some 150 thousand new working places annually. This is in line with our expectations, as it confirms the good macroeconomic dynamics throughout the year. Although the public sector shrinks very slowly, the private sector is now employer of almost ¾ of the total number of the employed in Bulgaria. However, in the state-monopolized spheres are working almost half a million people.
Wages accounted for a record high growth throughout the past year. As pace of growth the NSI data coincides with our valuations – some 20% wage growth of the most common working positions. As wage levels, however, differences remained considerable, as we state that the official statistics underestimates wages by between 30 and 50% in major Bulgarian cities.
Asset prices
Prices of housing real estate continued to pick up in 2007, as the average rate up to the moment is around 30%, as compared to a year earlier. We must note however, that the main contribution to this result is internal housing demand, whereas prices in resorts, where buyers are predominantly foreigners, stagnated. On its account, this structure of demand allowed for the market to grow, irrespectively of the mortgage crisis in the US and the following global demand contraction under rising interest levels.
The value of stocks up to this moment is around 30% higher than end-2006. On the stock exchange however we witnessed a “correction” – with the growth being almost 60% until the beginning of the fall, throughout recent months we saw a distinctive decline of some 20%.
The overall trend is for a faster asset price growth, as compared to consumer prices, despite the “hot” media and political theme of inflationary 2007.
Consumer prices
The average annual inflation up to November (as measured via NSI’s CPI) is 7.9% or a little more than it was in 2006. Consumers experienced higher food prices due to the global inflationary reasons. In the same time prices of services in the country continued to rise as a consequence of the more rapid price of labor growth relative to the EU.
The finance industry
Bank intermediation continued to deepen, as the ratio of bank assets to GDP almost reached 100%. Despite the undertaken by BNB new monetary restrictions, the credit activity remained high – annual growth of private non-financial sector credit is 59.1% as of end-October. In difference with previous years, the corporate credit expansion began to overtake the one in the household segment. In the same time, mutual funds remained the most dynamically developing segment of the finance industry. Financial services’ is one of the markets, upon which the EU membership is expected to reflect most tangibly – due to the opening of the market and the principle of the “single passport”. This can be seen in the following impressing balance: up to the mid-December interest toward development of activity in Bulgaria have declared 162 life insurers, 406 insurance brokers and agents, 360 investment intermediaries, 18 collective investment vehicles and 2 asset management companies from EU countries.
The pension industry capitalization grew to BGN 2.16 billion as of end-September (57% annual growth). The number of insured in private pension funds (in all three segments) exceeded 3.3 million. Strong impact over the pension savings’ expansion exerted positive labor market developments (improving employment, including due to reduction of shadow economy). The base, upon which pension contributions are calculated, also increased, as the growth in the average wage was combined with raising the size of the additional mandatory pension insurance to 5%.
Investments and “external risks”
Other macroeconomists continued to be worried by the growth of the Bulgaria’s current account deficit – by around EUR 2.3 billion in the year to October or 65% growth. They failed to acknowledge that the financial account result – indicative of the investment inflow – increased by EUR 4.3 billion or 88% more. Investments will continue to come into the country as resources and production facilities, which is “import” in the current account. In the same time, investments in fixed capital increased by 25% in real terms in the year to September. Only keeping the foreign capital inflow will allow for maintaining growth of investments in the economy at the rates, registered in 2007.
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