Tsvetoslav Tsachev, Head of Research Department, ELANA Trading: Bulgaria’s economic growth will hardly exceed 1.5% - 2% due to exports alone

- Mr. Tsachev, the events in Europe continue to be very dynamic and a definite solution for the debt crisis has not been found yet. How does this negative news affect financial markets?
- Markets are gradually calming down. They do not react so strongly and dramatically to the constant flow of news from Greece. The worries, however, are still there - the risk of Greece’s exit from the Eurozone and of economic recession in the region is being evaluated. Confidence is gradually being restored, and countries like Spain and Italy managed to get financing at lower interest rates. There is some optimism among investors that this year will be more successful than 2011. The price increase of shares, including those of banks, prove this trend.

- In recent years, oil and gold were among the most sought assets. How will these commodities move during the year and can we expect dramatic changes in their prices?
- Drastic changes may occur only in case of a Gulf War, which would lead to a large deficit of oil and higher demand for secure assets, such as gold. This is unlikely to happen. The prices of both commodities will record weak variations throughout the year, supported by the gradual economic recovery and the interest of investors in various assets. For oil, this is a logical development because Europe is on the verge of recession and high oil prices limit consumption. Any increase in oil prices has an impact on the entire economy.

- Given the uncertain economic environment, what assets will be most preferred by investors?
- I would prefer shares because they generate cash flow from the company’s operations rather than the profits from price increases alone incurred by the raw materials. Some companies also pay good dividends. Long-term investors are looking for shares in healthy companies with successful products such as Apple, for example.

- Bulgaria’s capital market has started the year dynamically but when will we see clearer signs of recovery. Are additional measures needed, aimed at stimulating investments in the financial sector?
- The main problem which the capital market faces is the lack of interest on the part of investors. Foreign funds do not operate on the Bulgarian stock exchange because turnovers are very low. Bulgarian investors will buy shares only when the stock exchange records better results and the economy shows noticeable signs of recovery. The expected reduction in interest rates on deposits this year will support capital market development. But, perhaps, we will first need to see yearly profits from stock investments.

- What are your expectations for the development of our economy in the next year? Is the planned 2.9% GDP growth realistic?
- The end of 2011 was not such a weak period, as one might expect at a time of crisis in Europe. However, recovery will be fragile and growth in the country’s economy will hardly exceed 1.5% - 2% due to exports alone. Banks are likely to become more active in lending and this will create preconditions for strengthening domestic consumption in the second half of the year. 2012 will be a good year, but not good enough to be felt tangibly by the entire society.

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