The collapse of the capital markets has largely eaten up the households' financial wealth. Over 5,200 million leva were lost in Bulgaria by the end of the third quarter of 2008 through various investment endeavours, from direct ownership of company shares to indirect participation in pension funds. Things deteriorated even further in the last quarter of 2008.

This emerged in a UniCredit Group study of the financial conduct of Central and East European (CEE) households during a crisis, which was presented on Friday by Milen Kassabov, senior economist at UniCredit Bulbank, and UniCredit Group expert Fabio Mucci.

In the last few years CEE households benefited most from the economic upturn and the stable rising income associated with it, which increased financial wealth and ensured easier access to credit. The impact of the international crisis, however, has taken its toll and the credit crunch has dealt a blow on household consumption, the analysis found.

Assets held in the form of listed shares and mutual funds have been hit the most by falling prices, forcing massive redemptions and transfers to bank deposits. The most tangible downturn in the capital markets was registered in Bulgaria, Romania, Croatia and Russia, the analysts concluded. As risk aversion will continue to dominate, traditional and safer saving products like bank deposits will gain further ground until confidence in the capital markets is fully restored, the experts said.

The Bank expects the households' financial position to worsen after years of steady economic growth and accumulation of net wealth. The experts predict minimal real pay growth in Bulgaria in 2009, and even a drop in pay in the other countries of the region.

Private current transfers from abroad and the remuneration of Bulgarians working abroad showed an atypical drop in November 2008. Until recently, inflows from Bulgarians working abroad were about 2,000 million euro a year.

The credit crunch is expected to have a stronger impact this year, which will make itself felt above all in short-term and unsecured lending, the analysts said.

Cooling demand and the burgeoning financial crisis may seriously contribute to a deeper slowdown in the CEE real estate market. In Bulgaria the supply of new housing is still growing at a considerable rate, while the growth in real estate sales ground to a halt in the last quarter of 2008 and prices started falling, the study found.

Source: BTA