Bulgaria's economy to continue to recover unless COVID-19 restrictions tighten further - c-bank

Bulgaria's economy to continue to recover unless COVID-19 restrictions tighten further - c-bank

Bulgaria's economy is expected to continue its recovery on a quarterly comparison basis in the last quarter of 2020 and in the first quarter of 2021 provided that anti-coronavirus restrictions do not tighten further, the central bank said.

"If the assumptions of no rise in the number of people infected with COVID-19 and no subsequent tightening of anti-epidemic measures realise, which otherwise will encourage households and companies to increase savings, in the fourth quarter of 2020 and the first quarter of 2021 the trend toward a recovery in the quarter-on-quarter economic activity is expected to be sustained," the Bulgarian National Bank (BNB) said in a quarterly economic review published on Tuesday.

The country's real gross domestic product (GDP), however, is expected to remain below its pre-pandemic level in the review period, the central bank noted.

Bulgaria's GDP fell by an annual 5.2% in the third quarter of this year, following an 8.6% decrease in the second quarter and rose 4.3% quarter-on-quarter, after a 10.1% drop in the previous quarter, according to the most recent data published by the National Statistical Institute (NSI).

In the previous edition of its quarterly study, the central bank said that it expects the country's economy to contract by an annual 5.5% in 2020, before expanding by 4% next year.

At the end of last month, the government approved an extension of the state of epidemic emergency introduced over the spread of the COVID-19 pandemic until the end of January 2021. Starting November 27, all restaurants, gyms, shopping malls and casinos have shut down while attendance at universities, schools, kindergartens, and nurseries is suspended. The measures are expected to be eased as of December 21.

Inflation is expected to decelerate further In the fourth quarter of 2020, compared with August, before accelerating in the first quarter of next year, the central bank said.

"In the context of decreasing oil prices on an annual basis, energy products are expected to have the largest negative contribution to the overall inflation," the BNB noted.

According to the financial institution, core inflation is expected to increase gradually in the beginning of 2021, reflecting the continued recovery of private consumption.

In line with the indications from the international environment of recovery of global economic activity, the annual rate of decline in the external demand for Bulgarian goods and services is expected to moderate by the end of 2020 and in the beginning of 2021, the central bank also said.

The external demand forecast is based on the assumption of addressing a potential increase in new coronavirus cases globally and in Bulgaria in the fourth quarter of 2020 and the first quarter of 2021 through containment measures that would not have such a negative effect as the measures launched in the first half of 2020, the BNB explained.

"Over the last quarter of 2020 and the first quarter of 2021 we expect the generation of precautionary savings by economic agents to continue to boost relatively high growth rate of banking system deposits, while the annual growth of loans to the non-government sector is expected to moderate further," the BNB also said.

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