Having led to an unprecedented collapse on the capital markets, the international financial crisis is now having its negative consequences on the households as well, the latest study of the CEE Strategic Analysis Unit of UniCredit revealed.

“Over the last 5 years households benefited most from the economic upswing in CEE, enjoying a period of stable rising income, improving labor market conditions and easier access to credit,” said Debora Revoltella, Head of CEE Strategic Analysis. The structural upwards shift in living standards has resulted in consumption growth. Furthermore the rapid development in real estate markets also contributed to an increase in the willingness of households to borrow. “The demand for credit remained high throughout 2008, keeping growth in the household debt in double digit figure,” said Revoltella. “The impact of the international crisis, however, has taken its toll over the last quarter of 2008”. Cooling income growth, coupled with negative wealth effects and still unchanged consumer spending led to only marginal growth in household gross financial assets at the regional level”. Overall, household financial asset growth is anticipated to have recorded a significant deceleration in 2008, up by a marginal +3 % on average. Thus the assets of the households over the last year reached 37 % of GDP, which is down from 41 % in 2007.

The tendency of increasing pressure on the households despite the comparatively lower appetite for debt will be noticeable in Bulgaria as well, the analysts of UniCredit Bulbank think. “The accumulation of wealth remained low in 2008, its annual increase being mere 6% (January – September) compared to 38% in late 2007, mainly due to the weak performance of the financial markets. Despite the expected slow down in lending no material improvement in the accumulation of net wealth is expected by the end of 2008, the net financial assets of households in Bulgaria being expected to reach 20 percent of the GDP, compared to 34% in 2007, experts of the Bank said.

“Bearing in mind the historically low savings capacity of the household sector, the less supportive macroeconomic environment and tightening lending requirements anticipated are likely to result in a further stretch of household’s financial position in 2009”, said Revoltella. As risk aversion will continue to dominate, according to the Head of CEE Strategic Analysis of UniCredit, traditional and safer saving products like bank deposits are set to gain further ground in 2009. Investments in mutual funds and shares that have gained popularity over the last years, on the other hand, are to attract only very moderate inflows from the households.

Naturally, companies will face increasing pressure from the reduced liquidity as well. The analyses of UniCredit Group show that corporate loans in 2008 grew twice as fast as deposits. This leads to demand for financial resource, which however is very expensive at the moment.