- Political stability
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- Macroeconomic developments
submited on 14.12.2010 in category Fiscal affairs | Political stability | Monetary policy | Macroeconomic developments
Industry Watch distributed among its subscribers the quarterly report "Personal Assets in Bulgaria: Financial Wealth and Housing Market". Here are the highlights of the report.
In the last month fears of the emergence of a new fiscal crisis in Portugal, Spain, Italy and other indebted countries have intensified.
The European debt crisis, affecting Greece first and then Ireland, has indirect effect on the finances of the population by keeping interest rates on loans and deposits at relatively high levels and by depreciating the euro against the dollar and the commodities, which reduces the household purchasing power in dollars. Unlike other countries such as Italy, however, Bulgarians have no direct investment in government bonds of some potentially threatened member states. Therefore, the emergence of a new debt crisis in the euro area would have more limited immediate impact on the financial health of households in Bulgaria.
Financial wealth of the population increased by as much as BGN 4 billion over the past 12 months exceeding BGN 38 billion at the end of September 2010. The increase of wealth at double-digit rates (11% annually) is due to the growth in all items of the household financial portfolio (excluding shares).
Despite the decrease in interest rates on deposits, bank deposits continued to grow. Households seek to secure a larger buffer of savings in case they lose their permanent income (from wages, rent, remittances from abroad). The situation in the labor market in the country remains uncertain, as the decline in unemployment in recent months is a seasonal effect rather than a lasting trend.
Bulgarian households, unlike European, at least for now, do not express a preference for actively managed wealth (mutual or voluntary pension funds), which carries more risk but also higher (expected) yield. In parallel, however, the interest toward international financial markets and investment in foreign mutual funds is growing.
Our forecast that in the second half of 2010 we will see some movement in the housing market came true. Although national prices are still falling, in Sofia for the first time in two years, there is an increase in residential property prices - more than 2% compared with the previous (second) quarter of 2010. The upward trend in house prices in the capital city will likely continue at a moderate pace in the coming quarters.
Moreover, housing credit is becoming more accessible. The potential for expansion of mortgage financing is large. In Bulgaria, only 9% of all housing was financed through bank credit, which is nearly 4 times less compared to developed European countries like Austria for example.