EU Commission predicts weaker contraction of Bulgaria's 2020 GDP, lowers 2021 growth fcast

EU Commission predicts weaker contraction of Bulgaria's 2020 GDP, lowers 2021 growth fcast

The European Commission said on Tuesday that it has revised its forecast for the expected decline in Bulgaria's real gross domestic product (GDP) in 2020 to 7.0%, from 7.2% projected in May.

The Commission expects Bulgaria's economy to pick up by 5.3% in 2021, down from 6.0% forecast previously, it said in its Summer 2020 economic forecast.

Risks to the forecast are broadly balanced, in line with the risks to the economy of the EU, the Commission added.

"With the easing of lockdown measures, private consumption is expected to rebound in the second half of the year and continue to expand at a moderate pace in 2021 as consumer confidence is gradually restored," the EU's executive body said.

According to the Commission, investment is expected to return to positive quarterly growth only next year, mainly because uncertainty remains high, while exports are forecast to pick up gradually throughout the second half of 2020 and into 2021.

Inflation in Bulgaria is forecast to settle at around 1% in 2020 and 2021, the Commission said. In 2021, inflation is expected to remain low, with positive contributions from food and services prices.

"Headline inflation has been on a downward path since the beginning of the year, owing to the drop in energy prices. The expected contraction of seasonal demand for tourist services and the temporary reduction of VAT rates for the sector are set to dampen services price inflation in the second half of the year," according to the Commission.

Last month, Bulgaria's tourism ministry said that it expects a decrease of over 50% year-on-year in tourism revenue in 2020 under its most pessimistic scenario. Earlier in June, Bulgaria's parliament announced that it has cut the value added tax (VAT) rate for restaurant and catering services to 9% from 20% in a bid to support the country's struggling tourism sector.The lower VAT rate will apply from July 1, 2020 until December 31, 2021.

Bulgaria's annual real GDP growth fell from 3.4% in 2019 to 1.2% year-on-year in the first quarter of 2020 as domestic demand declined on the back of lower private consumption and shrinking investment.

"Despite a good economic performance at the start of the year, the COVID-19 pandemic and the measures needed to contain it since mid-March have had an adverse impact on economic activity. [...] The deterioration in business sentiment and short-term indicators, which began in April, point to a sharp drop in economic activity in the second quarter," the Commission said.


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