Bulgaria's inflation is expected to gradually accelerate in the first and second quarters of this year, reflecting projections for upward movements in international prices of food and petroleum products over this period, the central bank said.
"Core inflation is anticipated to remain close to that at the end of 2020 mostly due to the assumptions of extending the anti-epidemic measures in Bulgaria until the end of the first quarter of 2021, which will continue to limit final consumer expenditure of households, in particular in services," the Bulgarian National Bank (BNB) said in the latest edition of its quarterly economic review published on Thursday.
According to the most recent data published by the statistical office, Bulgaria's consumer prices fell 0.6% year-on-year in January following a 0.1% increase in the previous month. On a monthly comparison basis, they rose by 0.2%, after adding 0.5% in December.
Economic activity in Bulgaria is expected to gradually recover on a quarterly comparison basis. The recovery is expcted to be more pronounced in the second quarter of 2021 if the assumptions of extending the anti-epidemic measures in Bulgaria and the country's major trading partners until the end of the first quarter materialise, the central bank also said in its report.
Bulgaria's gross domestic product (GDP) fell by an annual 3.8% in the last quarter of 2020 and rose 2.2% quarter-on-quarter, according to preliminary seasonally adjusted data issued by the National Statistical Institute earlier this month.
"Given the continuing partial recovery of global economic activity, the decline on an annual basis in external demand for Bulgarian goods and services is expected to shrink in the first quarter of 2021 and to post a significant increase in the second quarter," the BNB said adding that the forecast is based on the assumption that containment measures imposed in the fourth quarter of 2020 in other EU countries and Bulgaria would be extended until the end of the first quarter of this year.
The bank also said that deposit growth rates are expected to remain comparatively high in the first half of 2021. Additional moderation in credit growth to non-financial corporations and households may be expected in the second quarter of 2021, reflecting the gradual expiry of the extended moratorium period on bank loan repayments and the assumed repayment of a portion of deferred loans.
"Following the expiry of the deadline for deferring obligations of bank clients, an increase in the share of non-performing loans in bank portfolios can be expected, which will probably lead to a rise in interest rates on newly extended loans," the central bank added.