site.btaEuropean Commission: Bulgarian Economy Expected to Contract by 7.2% in 2020, Grow by 6% in 2021

Brussels/Sofia, May 6 (BTA Correspondent Nikolay Jeliazkov) - 
Bulgaria's real GDP is projected to contract by over 7 per cent
in 2020, largely due to the adverse impact of measures taken to
contain the spread of the pandemic following the declaration of
a state of emergency on 13 March 2020, writes the European
Commission (EC) in its Spring Economic Forecast for EU
countries, published on Wednesday.

The EU-wide economy is projected to contract by 7.5 per cent
this year and grow 6.1 per cent in 2021, while the eurozone is
set to contract by 7.75 per cent in 2020, followed by a 6.25 per
 cent growth next year. 

At the onset of the COVID-19 pandemic, economic conditions in
Bulgaria were favourable. At 3.4 per cent, GDP growth in 2019
was robust for the fifth year in a row, mainly driven by growing
 household consumption. This positive trend has been interrupted
 by the COVID-19 outbreak.

The strength of Bulgaria's economy and the positive external and
 fiscal balances before the outbreak of COVID-19 should help it
recover from the large economic shock caused by the pandemic,
points out the EC report.

The EC expects a rebound in economic activity in the second half
 of 2020 with the gradual lifting of the confinement measures.

The report points out that the unemployment rate has increased
significantly since the COVID-19 containment measures were put
in place, boosted in part by the return of workers from abroad.
 The unemployment rate is expected to jump to 7 per cent in
2020, after having reached historic lows of 4.2 per cent in
2019. In 2021, a partial recovery in employment is projected to
take place and the unemployment rate to decrease to 5.8 per
cent. Nominal wage growth, after years of substantial gains, is
expected to moderate to 3.5per cent in 2020 and 2,25 per cent in
 2021.

Per the report, Bulgaria is facing the COVID-19 pandemic from a
strong fiscal position. In 2019, the budget surplus reached 2.1
per cent of GDP. As part of the package of measures to contain
the pandemic and its impact the government announced a higher
spending on medical equipment, wage bonuses and increases for
the medical and security staff, as well as subsidies, tax
deferrals, state guarantees and a reallocation of investment
funds to support the economy. The severe macroeconomic outlook
is set to increase spending on unemployment and social benefits
and curtail the revenue from taxes.

The overall impact on the budget is estimated to be close to 5
pps. of GDP relative to the previous year, pushing the balance
into a deficit of around 2.3/4 per cent of GDP in 2020 after
four years of surplus, notes the EC. In 2021, based on a
no-policy-change assumption, the budget deficit is forecast at
1.3/4 per cent of GDP, mainly due to the positive impact of
higher economic growth on revenues and the fading impact of some
 expenditure measures.

The EC predicts the general government debt to increase and
reach over 25 per cent of GDP in both 2020 and 2021, as a result
 of the primary deficit, the contraction in GDP and certain
measures to support liquidity in the economy (e.g. the capital
strengthening of the Bulgarian Development Bank to provide state
 guaranteed loans) that do not affect the deficit but which do
weigh on debt. NV/DT