Real Estate Bubble wiped out BGN 83 bn from Bulgarian households

Diana Yossifova, special correspondent of Klassa in Dubrovnik

Between 2008 and 2009, Bulgarian households lost BGN 83 bn, or 130% of the country’s GDP, from the bursting of the real estate bubble. That was announced by Chief Economist of UniCredit Bulbank, Christofor Pavlov, during the roundtable titled “The way out of recession for Southeast Europe – challenges and engines” within the framework of the Euromoney conference in Dubrovnik.
According to him, real estate prices slumped by 24% since the beginning of the downturn and will continue to go down, opening a “black gap” in the budget of Bulgarian families.
Consumption, which accounts for about 70% of GDP, will be below its potential due to the following three main reasons: increase of unemployment, loss of households’ wealth, and reduced demand for credits, the expert commented. He added: “It’s normal that in this situation households would be trying to consolidate their debts and increase the percentage of their savings.”
Currently, some 6-7% of the money in the family budget goes for savings. If that share goes up by just 1%, that would mean a loss of BGN 300 m for Bulgaria’s GDP, as instead of being spent on consumption, the money would be saved, and about 70-80% of it would be deposited in banks. Unemployment is expected to reach its highest level in the second half of next year. “Banks can ensure some 5-6% credit growth but there is no demand. The fact that the newly extended credits for the first 7-8 months of the year are only 35-40% of those released last year, is quite indicative”, the economist explained. All that means that internal demand won’t be able to generate economic growth.