With the structural deficit of quality housing in our country, most likely cheap neighborhoods and properties will suffer a lot, the financier suggested
“There is absolutely nothing we can do in Bulgaria to stop the recession. If anyone thinks that with an increase in wages and additional fiscal incentives they will overcome inflation, this will lead to an explosion of the economy. The OECD indicator of consumer confidence in the future is at its absolute lowest point since it was created,” he pointed out.
Dr. Ivanchev is skeptical that a quick end of the war in Ukraine will control the situation with the imminent recession and inflation in the world, but expects it to be broken by the measures of the Federal Reserve in the USA and the European Central Bank.
The financier did not spare his criticism of the rulers. “The last government led at least partially a pro-inflationary policy, but separately in Bulgaria there is an inept behavior of the BNB, which failed to raise the minimum required reserves of the commercial banks, introduced the capital buffers late and left the banks to determine the floating component of the mortgage loans themselves,” he believes he.
Dr. Ivanchev predicted a serious effect of the recession on different parts of the real estate market and suggested that with the structural deficit of quality housing in our country, cheap neighborhoods and properties will most likely suffer a lot, while others will maintain their price or the decline will be more small. “FOMO effects (fear of missing out) can be observed on inflation and the housing and credit market in Bulgaria,” explained the financier.
He identified as a mistake the decision of the Bulgarian National Bank to allow commercial banks to form the floating component of mortgage loans at the average cost of deposits in Bulgaria. “In this way, the BNB partially relinquishes control over the creation of money, the financier believes. “Commercial banks are involved in the creation of money by lending to customers, and this can be limited by increasing the cost of credit.”
According to Dr. Ivanchev, if the floating component of mortgage loans was tied not to the average price of deposits in Bulgaria, which is the prerogative of commercial banks, but to Euribor, for example, there would already be an effect of an increase in the price of mortgage loans in Bulgaria.
“There is substitution by commercial banks of central bank policy, which is absurd. Instead of transmission of the ECB’s policy to Bulgaria, we allow internal reasons to move this market within BGN 15 billion,” the financier added.
Will bankruptcies and business closures begin due to the energy crisis in low-productivity sectors? Is it too late for Bulgaria to plan a new debt of about 2 billion euros in seven- and twelve-year bonds? What mistakes did the government make in managing the debt? Is macroeconomic stability put to the test with a 6% budget deficit? Are the worries of the European Central Bank justified that raising the main interest rates will cause a new debt crisis in countries like Greece, Italy, Spain, France?
You can watch the entire conversation in the video material of Bloomberg TV Bulgaria.
You can find all the guests of the show “The World is Business” here.