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The global financial crisis and Bulgaria

It would be unusual for any country in Europe not to experience some fallout from the global credit crunch and Bulgaria with its mass of foreign investment has started to experience the effects of the crisis although not to the extent of other European countries like the UK. The main impact is being felt economically and a downturn in economic growth has been predicted for next year – the first in the last five years, but still growth rates will be one of the highest in the EU. So whilst Bulgaria may be feeling the pinch, it is by no means suffering.

Banking on more customers

Whilst many financial institutions worldwide are suffering, Bulgaria’s banking system continues to be stable with an excellent liquidity status, however because 90% of the country’s banks belong to major European financial institutions who are affected by the credit crisis, the Bulgarian branches will soon have to rely on financial resources from their Bulgarian citizens’ deposits. Consequently this has led to some attractive rates for savings accounts in a clever attempt to attract more customers to bring in more money. Krassen Yotov of Industry Watch explains, "Deposits form the biggest asset in the financial wealth of the Bulgarians. Their growth rate stands at 28%. Some of the growth in deposits has come from new deposits, new wealth or re-channeling of financial resources from other forms of saving." The drive to attract more borrowers during the last two years has meant that credit interests here have increased and Bulgarian banks, like their European cousins are now cutting back on credit facilities. This is a shrewd move to ensure that they do not experience the same fate as many UK and US banks have experienced through over-lending. Small and medium businesses that are reliant on credit often to comply with EU production and hygiene rules are the hardest hit, but most small, local businesses set up by expats and Bulgarians have not borrowed money and are still thriving.

Realistic real estate

Many companies, particularly those whose order books are filled by foreign clients have seen a marked decrease in trade. In some industries employers have had to lay off staff and this means that unemployment next year will climb from current rate of 6% to an anticipated 7%. The industry hardest hit by the financial crisis is the construction industry. Some large building projects are being frozen and foreign investment in construction has decreased but by no means dramatically; building projects in Sofia and on the coast are shooting up and the increase in shopping malls across Bulgaria continues at a rapid pace. The suspension of some projects can only have a positive effect on Bulgaria, which has of late been accused of over-construction. The slowdown will mean that only quality projects by reputable companies continue and the market will cease to be flooded by supply. It will also bring property prices down to a more acceptable level, closer to real values and with the cheapest real estate in Europe this means Bulgaria is still an even better investment. Naturally there will be an adverse effect on some real estate companies, but this will rid the market of many of the small fly-by-night firms leaving only reputable companies in business.

Affects on the average Bulgarian

Bulgaria has the highest rate of home ownership in Europe, but most Bulgarians do not have mortgages on their properties, which mean that they are not negatively affected like their UK counterparts who are now looking at high mortgage rates and negative equity. Most Bulgarians also live by the old saying "Save a penny for a rainy day" and have a little put by to help them through any periods of difficulty. Again this is dissimilar to some of their European neighbours who spend today without thinking of tomorrow. An Industry Watch survey shows that Bulgarians maintain over 88% of their money in cash or in deposit accounts, whereas the rest of Europe keeps only 34% aside.  The Bulgarian’s traditional mode of saving limits household losses because they only hold around 12% of speculative financial capital; within the rest of the EU and of course America, people are exposed to higher degrees of risk and are therefore more liable to be affected by the fluctuation within capital markets.

Bulgarians are extremely cautious with their money – they do not earn a lot, but still manage to save for things like their children’s education or for property repairs. Low income earners generally save to keep risks minimal. Dimitar Chobanov from the Institute for Market Economics says, "The older generations of Bulgarians have been well-known for sticking to the old folk maxim, “Save a penny for a rainy day. Until quite recently there had been an urge, a compulsion or thrust, if you want to consume more and never stop to think before getting endless loans. The credit crisis has sobered quite a few, and hopefully made them more circumspect. The process will be aided by the aggressive policies pursued by commercial banks with regard to attracting deposits. We’ve witnessed in the last few weeks great aggression on the part of banks in shopping deposits by raising interest rates."

Most Bulgarians worry about losing their jobs according to research from Industry Watch, however the growth in the number of foreign firms  setting up branched in Bulgaria has meant that there is a lot of secure employment on offer and with international companies looking to cut costs, Bulgaria remains an attractive destination for cheap but highly skilled labour.