site.btaBNB Expects GDP to Increase to Pre-pandemic Level in Coming Month Amid Growing Inflation

Sofia, December 4 (BTA) - The Bulgarian National Bank (BNB) said in its Economic Review that it expects Bulgaria's GDP to increase and reach its pre-pandemic level in the coming months amid growing inflation.

GDP Growth

In the second quarter of 2021, BulgariaТs real GDP fell by 0.3 per cent on a quarterly basis, although the contributions of individual sub-components suggested an increase in economic activity on a quarterly basis. According to seasonally adjusted national statistics data, private consumption and net exports of goods and services contributed positively to economic activity growth over the review quarter, which was only partially offset by the fall in government consumption and investment in fixed capital. Similar developments were also observed in gross value added, which posted a quarterly decline for the total economy over the second quarter of 2021, while reporting an increase in all major economic sectors (agriculture, industry and services). During the second quarter labour market conditions improved: a quarterly increase in employment and a decline in unemployment rate, as well as a rise in nominal compensation of employees were reported.

Inflation

Annual inflation measured by the HICP continued to increase, reaching 4.0 per cent in September 2021 (0.0 per cent in December 2020). The price rise was broad-based across HICP components, reflecting the simultaneous effect of pro-inflationary factors in terms of both the external and internal macroeconomic environments. Energy products and food had the largest positive contributions to the overall inflation in. Inflation is projected to accelerate further in the fourth quarter of 2021, and thereafter HICP growth would slow down in early 2022 in line with the technical assumptions for a weaker annual increase in international food and petroleum product prices compared to the corresponding period of 2021.

Deposits

In the first eight months of this year, the non-government sector's deposits in the banking system increased further at comparatively high rates, with accelerated increase in labour income, continued maintenance of precautionary savings by households and still limited investment activity of corporations contributing to it. The expected gradual recovery of investment activity, positive housing market prospects and the sustained low interest rate levels will favour the growth of credit to the private sector.

External Demand

External demand for Bulgarian goods and services is expected to grow considerably in the fourth quarter of 2021 and the first quarter of 2022 year-on-year in line with the international environment and the low base effect over the corresponding periods of the previous and current year. The main assumption used in preparing the forecast, which is also related to the development of the COVID-19 pandemic, is that the negative macroeconomic effects of the containment measures in the euro area countries would be limited owing to the gradual adaptation of economic agents' behaviour to them./