- Political stability
- Fiscal affairs
- Monetary policy
- Regulated markets
- Privatisation
- Macroeconomic developments
submited on 21.03.2013 in category Regulated markets | Fiscal affairs | Privatisation | Political stability | Monetary policy | Macroeconomic developments
In the days after the announcement of the government’s decision to return the mandate, the insurance premium against default by the Bulgarian government (also known as credit default swap) increased, but still remained significantly below the values recorded at the same time last year. In March the quotations of this indicator stabilized.
Interest rates on Bulgarian government bonds with 10 years of remaining maturity continued to fall in February 2013 – down to 3.25% from 3.27% in January. The spread between interest rates on Bulgarian and German bonds also tightened in the last few months to ranges of 1.8-2.2 percentage points compared to 3.3-3.5 percentage points 12 months ago.
It is still not clear what the effect of the political power change on the Bulgarian government’s credit rating will be. Bulgaria starts from relatively favorable fiscal position - with a lower budget deficit and public debt than the EU average. Since 2011, Bulgaria has been the only European country that has received credit rating boost from Moody's. All other rating actions of this agency have been towards lowering the credit rating of the EU countries or changing their outlook to negative. Moody's and Standard & Poor's commented on the change in political risk in Bulgaria. Both agencies stress that as long as macroeconomic stability and the medium-term fiscal framework are maintained, the government's credit rating will not suffer.
Bulgaria's economic growth slowed down to 0.8 percent per year in 2012, but the Bulgarian economy still showed positive growth unlike the Eurozone and the EU which are in recession. Consumption growth is accelerating, driven primarily by an increase in household spending, mainly on necessities.
For the first time since 2008 there has been a rise in fixed investment, albeit moderate - by 0.3% annually. In nominal terms, investments reached BGN 8.5 billion in 2012, or 21% of GDP. Even amidst the crisis, the share of investment in GDP remained above 20%. Bulgaria is among the EU members with the highest investment rates in recent years, despite the cooling of investment activity after the onset of the global crisis. In January 2013 the Bulgarian industry reported the highest real growth of industrial production (together with Lithuania) in the EU – 8% year-over-year.
The Bulgarian banking system has been gradually adapting to the new economic environment of slower economic growth and weaker inflow of foreign capital for some time now. Statistics reported also that the growth of bad loans has moderated. Consumption is also on a path to recovery, while housing prices are close to equilibrium which will also exert a positive impact on the value and quality of banking assets.
Financial wealth of households exceeded BGN 50 billion at the end of 2012. The shrinking of household debt to banks and financial institutions persisted, resulting in net financial wealth growing from BGN 33.5 billion in 2011 to BGN 39.2 billion a year later. Financial wealth of the population grew by BGN 5.4 billion last year, as two thirds of this increase is due to rising bank deposits.
As a result of the new tax rate on time deposits, their growth slowed down to 5% in early 2013 compared to 12-13% before the new tax was announced. However, the growth of overnight and saving deposits, which are not subject to taxation and are therefore close substitutes, accelerated, respectively, to 15% and 34% y-o-y.
In 2013 Industry Watch will work for 10th year in favor of the Bulgarian business. And the world, Europe and Bulgaria will enter the 5th year of the global financial crisis. The dynamics of the economies, however, is diverse - some countries are just initiating the necessary reforms, others quickly adapted. In this situation, the recovery in Bulgaria continues to depend on foreign investment, the stability of the financial sector, reforms in public services, the flexibility of export-oriented production, income and household behavior.
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