- Political stability
- Fiscal affairs
- Monetary policy
- Regulated markets
- Privatisation
- Macroeconomic developments
Household assets grow steadily
submited on 27.07.2007 in category Political stability | Fiscal affairs | Monetary policy | Macroeconomic developments
submited on 27.07.2007 in category Political stability | Fiscal affairs | Monetary policy | Macroeconomic developments
In recent few years we observe in Bulgaria rising prices of long-term financial assets, strong acceleration of competition in the financial sector, introduction of new investment vehicles, rising real estate prices, considerable credit expansion with declining real interest rates and record GDP growth.
This combined with improving employment, increasing economy’s production potential and growing real income reflected favorably on Bulgarian households’ financial position, i.e. – their wealth.
From macroeconomic perspective wealth growth is already a fact. Our regular specialized survey showed that in 2006 the value of household financial assets increased by around 25%, while in Q1 of 2007 we registered new acceleration of that growth – to 26% on annual basis. In nominal terms financial wealth reached around BGN 24 billion as of end-March, or 48% of GDP.
Expansion of net financial wealth (with accumulated debt being subtracted) is slower (around 19% annually in Q1), which is attributable to fast rates, at which banking and leasing credit grows. At the same time, real estate prices continue to rise, increasing wealth in the form of urban residential property (annual growth is 23% as of end-Q1 of 2007).
We must take into consideration the fact that our estimate of wealth is based on aggregated data of household sector in general, which is actually quite heterogeneous. Thus it is possible on a micro level for different perceptions of the above-described expansion to exist – after all many people assess their welfare not by the value of their own assets, but by the quality of life they maintain. It is highly probable, for example, older owners of a large apartment in the centre of Sofia to perceive themselves as very poor despite the substantial value of their residential property.
In the first 4 months of the year the indicator “consumer confidence”, monitored by NSI, rose by 7.8 points. The regular consumer survey showed favorable trends regarding not only wealth accumulation in the last year, but also expectations of the next 12 months; it is interesting that the relative size of the “running into debt" consumers and "managing to make ends meet" decreased at the expense of those who are “saving a little”.
In line with nominal expansion there is an ongoing process (although still slow) of qualitative change in the structure of the financial portfolio. There are indications for a gradual improvement of the population’s investment culture and increase of demand for more productive investment vehicles. Although bank deposits remained a dominating form of savings, the share of wealth, invested in long-term and sensitive to market conjuncture vehicles, is increasing. Pension funds, life-insurance companies and collective investment schemes already manage 9.2% of the population’s savings. The share of wealth directly invested into securities is fast growing – to 4.6% as of end-Q1 of 2007.
The overall macroeconomic result is that in the Bulgarian economy the so called “wealth effect” is emerging – under conditions of growing asset value, the marginal propensity to consume also increases as well as confidence to partially finance that consumption with credit. The change in stimulus and consumption models, on its side, reflects on the balance of payments’ current account, inflationary dynamics and after all, on GDP.
Our medium term forecast is for keeping the steady growth rate of wealth accumulation in the range of 20-25% annually. This growth will be supported by the expected favorable development of the economy, the dynamics of labor market, income growth, capital inflow, accelerating competition in the finance industry, etc.
We expect positive impact of the potential introduction of the multi-fund system in the voluntary pension insurance. The further increase of the stock exchange capitalization and improvement of its liquidity will continue to reflect favorably on the volume of direct investments in shares, as well as the return of holding in mutual funds, pension and insurance companies.
This combined with improving employment, increasing economy’s production potential and growing real income reflected favorably on Bulgarian households’ financial position, i.e. – their wealth.
From macroeconomic perspective wealth growth is already a fact. Our regular specialized survey showed that in 2006 the value of household financial assets increased by around 25%, while in Q1 of 2007 we registered new acceleration of that growth – to 26% on annual basis. In nominal terms financial wealth reached around BGN 24 billion as of end-March, or 48% of GDP.
Expansion of net financial wealth (with accumulated debt being subtracted) is slower (around 19% annually in Q1), which is attributable to fast rates, at which banking and leasing credit grows. At the same time, real estate prices continue to rise, increasing wealth in the form of urban residential property (annual growth is 23% as of end-Q1 of 2007).
We must take into consideration the fact that our estimate of wealth is based on aggregated data of household sector in general, which is actually quite heterogeneous. Thus it is possible on a micro level for different perceptions of the above-described expansion to exist – after all many people assess their welfare not by the value of their own assets, but by the quality of life they maintain. It is highly probable, for example, older owners of a large apartment in the centre of Sofia to perceive themselves as very poor despite the substantial value of their residential property.
In the first 4 months of the year the indicator “consumer confidence”, monitored by NSI, rose by 7.8 points. The regular consumer survey showed favorable trends regarding not only wealth accumulation in the last year, but also expectations of the next 12 months; it is interesting that the relative size of the “running into debt" consumers and "managing to make ends meet" decreased at the expense of those who are “saving a little”.
In line with nominal expansion there is an ongoing process (although still slow) of qualitative change in the structure of the financial portfolio. There are indications for a gradual improvement of the population’s investment culture and increase of demand for more productive investment vehicles. Although bank deposits remained a dominating form of savings, the share of wealth, invested in long-term and sensitive to market conjuncture vehicles, is increasing. Pension funds, life-insurance companies and collective investment schemes already manage 9.2% of the population’s savings. The share of wealth directly invested into securities is fast growing – to 4.6% as of end-Q1 of 2007.
The overall macroeconomic result is that in the Bulgarian economy the so called “wealth effect” is emerging – under conditions of growing asset value, the marginal propensity to consume also increases as well as confidence to partially finance that consumption with credit. The change in stimulus and consumption models, on its side, reflects on the balance of payments’ current account, inflationary dynamics and after all, on GDP.
Our medium term forecast is for keeping the steady growth rate of wealth accumulation in the range of 20-25% annually. This growth will be supported by the expected favorable development of the economy, the dynamics of labor market, income growth, capital inflow, accelerating competition in the finance industry, etc.
We expect positive impact of the potential introduction of the multi-fund system in the voluntary pension insurance. The further increase of the stock exchange capitalization and improvement of its liquidity will continue to reflect favorably on the volume of direct investments in shares, as well as the return of holding in mutual funds, pension and insurance companies.
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