site.btaEBRD Projects 4% Economic Growth in Bulgaria Next Year after 5% Drop in 2020

Мay 13 (BTA) - The European Bank for Reconstruction and Development (EBRD) projects that Bulgaria's economy will contract by 5 per cent this year due to the coronavirus pancemic's impact and will rebound with 4 per cent in 2021, shows the Bank's latest Regional Economic Prospects report, published on Wednesday.

The report's part about Bulgaria says that in 2019 this country recorded a solid growth of 3.4 per cent, driven mainly by private consumption, fuelled by increased earnings and a higher employment rate amid the tightening labour market, with an unemployment rate of around 4 per cent.

In 2020, however, economic output is expected to decline by 5.0 per cent, mainly due to a sharp decrease in economic activity in March and during the second quarter due to the domestic containment measures pursued by the authorities to fight the coronavirus pandemic.

Bulgaria declared a state of emergency on 13 March, imposing tough restrictions on travel and economic activity including closing schools, restaurants, bars and non-essential shops. A significant drop in consumption of services and durable goods is expected, affecting SMEs in particular. Demand-side effects are likely to be large, given that retail trade and other directly affected services account for almost 25 per cent of GDP.

Other key transmission channels include a slowdown in exports of goods, given the lower demand globally, and postponed investments amid increased uncertainty and bearish market sentiment. In addition, the country's tourism sector will be strongly hit (tourist spending accounts for about 10 per cent of GDP). The mitigating factor will come from the increased government spending in the form of a fiscal crisis response package of about 3 per cent of GDP announced so far.

The budget, redrafted in light of the new circumstances, envisions a deficit of 2.9 per cent of GDP, compared to a previously planned balanced budget. After four consecutive years of budget surpluses, and with public debt at 21 per cent of GDP, Bulgaria is among the least indebted countries in the EU. Also, the Bulgarian National Bank has reacted promptly providing liquidity to the banking sector. The country's entry to the ERM2 is now scheduled for July 2020, although a further delay could not be ruled out. Under the baseline scenario, a recovery is expected in 2021, with GDP growth of 4.0 per cent.

The projections for the region of Southeast Europe (Bulgaria, Greece, Cyprus and Romania) is for a drop in GDP of 4.8 per cent in 2020 followed by a 4.6 per cent growth in 2021.

Economies across the regions of the EBRD may contract on average by 3.5 per cent this year, because of the impact of the coronavirus, with a rebound of 4.8 per cent possible in 2021. However, in its latest Regional Economic Prospects report, the EBRD warned that these projections are subject to "unprecedented uncertainty".
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