Countries in the region need to react to the changed environment in order to accomplish the “soft landing” scenario

UniCredit Group pursues the beneficial strategy – that of a of long-term investor in the region

The changed and unstable situation on international financial markets will impact also the developing markets in Central and Eastern Europe (CEE) but if the countries in the region succeed in performing “soft landing”, economic growth will only slow down its rates and will not stop. This is envisaged by the analysts of UniCredit Group who retain their positive expectations with respect to development perspectives in the CEE. The recent researches of the Group’s economists presented at the Euromoney International Conference, which takes place today and tomorrow, reveal that the necessity of convergence (catching up with standards) will continue to bring about to an increase in GDP in the following years, as well.

In the course of the Conference Euromoney’s Director Mr. Martin Born presented to the Chief Executive Officer of UniCredit Bulbank the Best Bank in Bulgaria Award for 2008. At a meeting in Washington only a few days ago the monthly publication for international financial analyses “Global Finance” presented to UniCredit Bulbank the same Prize.

„On the global level conditions are changed and this makes us face challenges but through keeping to a reasonable behaviour investors can soften the consequences of the crisis”, said Debora Revoltella, UniCredit Group’s Chief Economist for the CEE at a discussion panel of the Euromoney’s Conference dedicated to the CEE markets.

According to her the bank market in the region still has a great potential. UniCredit’s researches reveal that by this mid-year the ratio credits/GDP in Southeast Europe stands at 54% while for the Eurozone this indicator is 126%. In average for the region, loans per capita amount to 2,423 euros and deposits are 2,221 euros.

Actually, it is this difference in favour of debt that is among the basic challenges which the CEE has to address, particularly Southeast Europe. In the first half of 2008 all throughout Southeast Europe, including Bulgaria, economic growth accelerated to some of its highest values recorded since the beginning of the transmission period. This was accompanied by unemployment decrease and real incomes increase with rates unseen in the last decade. The accumulation of huge macroeconomic disbalances in the context of the fast worsening of the external environment is however an indicator for risk increase for the economies of Bulgaria and the other countries in the region, point out the experts of UniCredit Group.

„In the present situation the main challenge for the countries in Southeast Europe is their economic dependence on the in-coming capital flows”, says Ms. Revoltella. The calculations of UniCredit Group’s analysts show that in the countries in the regions of Southeast Europe and the Baltic Republics credits are already by 50 billion more than deposits, a similar tendency being expected to develop in the following years also in the whole of Central Europe. Kazakhstan, Lithuania, Estoniya and Bulgaria are among the most sensitive countries with regard to incoming capitals.

The global financial crisis impacts negatively the price and availability of external financing, and the effect on the three sectors underlying economic growth in the recent years, namely real estates, construction, and financial intermediation, will be substantial.

In spite of that the economy retardation will be neither drastic, nor dramatic, UniCredit Group’s economists forecast.

Their middle scenario for Bulgaria envisages that economic growth will slow down to about 4.2% in 2009 and will get stabilized around values that are close to the potential growth for 2010 and 2011 that was expected prior to the worsening of international environment. The gradual slowing down of economy will allow for the reduction of the current account deficit and inflation to more sustainable levels in the mid-term span.

Macroeconomic data and forecasts for Bulgaria

	2006	2007	2008f	2009f	2010f
Nominal GDP (euros, billion)	25.2	28.9	34.5	39.1	43.7
GDP per capita, in euros	3 286	3 782	4 535	5 164	5 808
Real GDP, yoy (in %)	6.3	6.2	6.3	4.2	4.5
Inflation (CPI), yoy, eop (%)	6.5	12.5	10.3	8.0	6.5
Inflation (CPI), yoy, avg. (%)	7.3	8.4	13.0	9.1	7.4
Unemployment, eop (%)	9.1	6.9	6.7	7.0	7.2
Current Account Balance / GDP (%)	17.8	21.8	23.5	20.2	16.5
FDI/ GDP (%)	23.8	22.6	15.5	10.0	11.0
Budget balance/БВП (%)	3.6	3.5	3.5	3.0	2.5
Total Foreign Debt / GDP (%)	81.7	99.8	103.0	108.0	111.0

Sources: Central Bank, National Statistics Institute, UniCredit Group

Contacts:

UniCredit Bulbank, Public Relations and Corporate Communications Department

Victoriya Blajeva, tel. 02 9264 993, wjlj/ebwjepwbAvojdsfejuhspvq/ch

Еkaterina Ancheva, tel. 02/9264 963, flbufsjob/bodifwbAvojdsfejuhspvq/ch