Industry Watch: Although Investments in Bulgaria are Increasing, after 2009 the Investment Activity is Weak

Novinite Insider » OPINIONS | May 4, 2018, Friday // 14:30
Bulgaria: Industry Watch: Although Investments in Bulgaria are Increasing, after 2009 the Investment Activity is Weak

Inflation measured by the consumer price index accelerated to over 2% on average in Bulgaria in 2017 after it was negative in 2014-2016. Consumer inflation reached 2.2% on average for the last 12 months until March 2018. This shows the periodical report "Personal Assets in Bulgaria: Financial Assets and the Housing Market" for the first quarter of 2018 by Industry Watch.

Changing the price level is important for both households and businesses and the government. Accelerating inflation, with equal other conditions, limits the purchasing power of income and savings and encourages consumption. Raising inflation usually means higher revenues for producers and traders and easier servicing of their creditor obligations. Moderate inflation has traditionally had a positive impact on the fiscal position of the government because it is linked to a rise in government revenue in nominal terms.

Households and businesses face different price dynamics. For firms, the value of inputs, materials and resources, as well as the cost of investment goods (including machinery and equipment) are important. Investment inflation in 2017 accelerated appreciably to 4.4%, significantly outpacing consumer inflation.

One reason for the higher price paid by companies to acquire fixed assets is the appreciation of most commodities traded on international exchanges. As a result, external inflation, measured through the deflator of imports, is positive in 2017 for the first time since 2012. External inflation accelerated, although the euro appreciated at a two-digit rate against the US dollar in 2017. Strengthening the single European currency somewhat moderated the effect of rising commodity prices on the overall price picture in Bulgaria. The upward trend in commodity prices continued in 2018. In March 2018, crude oil and natural gas were about 30% more expensive than a year earlier, while the price of copper and aluminum rose by 16.7%, respectively, and 8.8% for 12 months.

Prices of certain food commodities are also rising. EU sugar price has risen by 14.3% compared to March 2017. Although global factors are at the core of accelerating inflation in Bulgaria, several "internal" processes also contribute to a faster rise in prices in the country. Although investments in Bulgaria are increasing - by 3.8% in 2017, investment activity is weak after 2009. In 2017, investments measured at constant prices are still one third below the peak levels reported before the crisis. Due to the limited investment in fixed assets, increased production is at the expense of a higher load on existing capacities in industry, reaching 76.8% in January 2018. Reducing spare production capacity leads to upward price increases due to companies' limited capabilities to react of increased orders by expanding production in the short term. Therefore, sustainable investment growth in the real sector is key to increasing the flexibility of businesses and maintaining moderate inflation over the next few years. Households' financial wealth increases by BGN 6.1 billion in 2017 - most since 2007, reaching 77.2 billion levs at the end of last year.

The motors of the growth of wealth are divergent. Employment growth (by 4.4% on average) and average wage (by 10%) creates additional income for Bulgarians in the year 2017, amounting to BGN 5.1 billion. More and more Bulgarians are finding their way into the European labor market. Thus, the emigrant money amounted to 1 billion 953 million euros last year, rising by 30% per year. Interest rates on deposits are no longer a significant source of financial wealth, adding BGN 183 million to annual household budgets.

Attitudes among Bulgarian consumers are predominantly optimistic and this is reflected in the costs incurred, both for short-term and long-term goods. Bulgarians seem even more willing to look for loan financing for their purchases. About a quarter (24.3%) of additional consumption in the past year is funded through a consumer loan. However, credit expansion is still moderate in a historical context. In comparison, in 2008, half the increase in citizens' consumption was funded with a new consumer credit. Housing wealth increases by EUR 8.1 billion in 2017, mainly due to the reported rise in apartment prices in the country. House prices in the country are increasing by 8.2% in 2017, or growth for the fourth consecutive year.

According to the rate of increase in prices in 2017, Bulgaria is lagging behind in the EU only from Ireland, Portugal, Slovenia, the Netherlands and the Czech Republic, but it is significantly ahead of Romania. Residential prices are rising in 24 of 28 districts in 2017, according to NSI and Industry Watch. The capital already concentrates 36.5% of the housing wealth of Bulgarian citizens, while a little more than one tenth is formed by the dwellings in the Varna district. In the districts of Plovdiv and Burgas is about 9% of the "real" wealth of the population. Between 2% and 3% of the housing wealth of Bulgarian citizens is located in the regions of Rousse, Blagoevgrad, Veliko Tarnovo, Haskovo and Pleven. In the 18 areas with the lowest value of the properties is concentrated 18.2% of the housing wealth, or twice less than the capital Sofia.

We need your support so can keep delivering news and information about Bulgaria! Thank you!

Opinions » Be a reporter: Write and send your article
Advertisement All Are Welcome! Join Now!
Bulgaria news (Sofia News Agency - is unique with being a real time news provider in English that informs its readers about the latest Bulgarian news. The editorial staff also publishes a daily online newspaper "Sofia Morning News." (Sofia News Agency - and Sofia Morning News publish the latest economic, political and cultural news that take place in Bulgaria. Foreign media analysis on Bulgaria and World News in Brief are also part of the web site and the online newspaper. News Bulgaria