site.btaEU Autumn Economic Forecast: Sharp Recession and Gradual Recovery for Bulgaria

November 5 (BTA) - Bulgaria's GDP will contract by 5.1 per cent in 2020 but will grow by 2.6 per cent in 2021 and 3.7 per cent in 2022, according to the Autumn Economic Forecast for Bulgaria of the European Commission. The Forecast for the entire EU was published by the Commission on Thursday.

Back in July, the Commission expected Bulgaria's GDP to shrink by 7.1 per cent this year and to grow by 5.3 per cent next year.

The EC analysts say that economic developments in Bulgaria have been marked by the adverse impact of the COVID-19 pandemic. Containment measures affected adversely supply in sectors directly subject to them, hit the disposable income of households and brought about a higher savings rate. The contraction of consumer spending was curbed by continued wage increases and the relatively low weight in consumption of most affected services.

The Commission expects that lower employment and subdued consumer confidence, related to the second wave of the pandemic, will weigh on private consumption. At the same time, the government's anti-crisis measures are expected to support private income.

Investment activity in Bulgaria declined significantly in the first half of 2020 and reduced actual and expected business activity, combined with higher uncertainty, prompted companies to postpone investment plans. These factors are expected to remain in place throughout 2020 and subdued investment is likely to persist, the Commission says.

The export of commodities began to fall sharply in March 2020 and while signs of recovery in exports to EU markets started to be registered in May 2020, exports to third countries have not improved.

Travel services came to a halt in April-June and the sector has improved only slightly since then.

The second wave of the pandemic is set to weigh on the rebound of exports in the last quarter of 2020 and the first of 2021.

The economic recovery is projected to bring the economy back to pre-crisis levels by the end of 2022. Both exports and consumption are set to contribute positively to the expansion in the next two years, coupled with positive external demand and labour market developments.

Investment is forecast to recover only gradually in 2021 due to high uncertainty and then grow strongly in 2022 on the back of an improved cyclical position and recovering domestic demand.

The Bulgarian labour market continues to slowly stabilise. The unemployment rate has increased significantly since the onset of the COVID-19 pandemic and the government's job retention scheme has helped limit job losses. The largest share of job losses was recorded in the accommodation and food services sectors.

After a sharp increase in the first half of the year, the unemployment rate is expected to level off at 5.8 per cent in 2020. A partial recovery in employment is projected to take place in 2021 and the unemployment rate is set to reach 5.6 per cent.

Despite the worsened labour market conditions, compensation per employee is projected to continue growing, albeit at a more moderate pace.

Inflation has been on a downward path since the beginning of the year due to lower fuel prices. It is expected to fall to 1.2 per cent in 2020 and then gradually increase to 1.4 per cent in 2021 and 1.8 per cent in 2022, driven mainly by services inflation.

The analysis says that Bulgaria is facing the COVID-19 pandemic from a strong fiscal position. Despite the crisis-relief measures the government has put in and the deteriorating economic outlook, the budget in cash terms remained in surplus for about two thirds of the year but is set to turn negative reaching around minus 3 per cent of GDP by the end of 2020. In 2021, the budget deficit is forecast at around 3 per cent.

General government debt is expected to increase by more than 5 percentage points and reach over 25.75 per cent of GDP in 2020 and 26.5 per cent in 2021, before returning to a downward trend in 2022, the EC Forecast says. RY/LN

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