Bulgaria's economy likely to start recovering from COVID-19 crisis in Q3 - c-bank

Bulgaria's economy likely to start recovering from COVID-19 crisis in Q3 - c-bank

An economic recovery in Bulgaria will most likely start in the third quarter of 2020 on a quarterly comparison basis in case the coronavirus outbreak does not intensify and there is no new tightening of restrictions, the Bulgarian National Bank (BNB) said.

"We expect that the negative impact of COVID-19 on consumer expenditures and placed orders in the second quarter of 2020 will result in a fall in real GDP compared to the January-March period," the central bank said in the first-quarter 2020 edition of its Economic Review report published on Friday.

Bulgaria's economy expanded by 2.4% year-on-year in the first quarter of 2020, slowing down from 3.1% growth in the last quarter of 2019. On a quarterly comparison basis, GDP growth also decelerated, to 0.3% in the January-March period of 2020 from 0.8% in the fourth quarter of 2019, the National Statistical Institute (NSI) said last month, citing preliminary data.

According to the BNB, Bulgaria's inflation is expected to slow down further in the second and third quarters of 2020, due to depressed demand and the uncertain economic environment. Prices of energy products are also expected to fall, as well as food prices led by meat and cereal products, the central bank said.

Bulgaria's consumer prices rose by 1.3% year-on-year in May following a 1.8% increase in April, NSI said last month. On a monthly comparison basis, consumer prices decreased by 0.3% in May, after falling by 0.6% in the previous month.

The significant deterioration of the international economic environment is expected to lead to a serious annual fall in external demand for Bulgarian goods and services in the second quarter of this year, whereas in the third quarter the fall is anticipated to slow down due to a gradual easing of restrictions aimed at limiting the spread of the virus, the central bank said.

The BNB also expects overall current and capital account surplus to decrease year-on-year in the second and third quarters of 2020, driven primarily by goods and services trade balance.

As regards the country's banking system, credit dynamics data by end-March does not yet show a significant slowdown in the annualised growth rate compared to early 2020 rates, the BNB said.

"The formation of precautionary savings by economic agents due to the increased uncertainty in the macroeconomic environment is anticipated to drive a continuing rise in deposits over the projection horizon. Credit is projected to decelerate its annual growth as a result of weakening demand, possible tightening of credit standards and reduced risk appetite of banks," the BNB said.

In the fourth-quarter 2019 edition of its report, the BNB said it expects Bulgaria's real gross domestic product (GDP) growth to stabilise at 3.5%-3.6% in 2020-2021, reflecting an increase in domestic demand.

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