UniCredit Bulbank slightly lowers Bulgaria's GDP forecast for 2021, 2022

UniCredit Bulbank slightly lowers Bulgaria's GDP forecast for 2021, 2022

Bulgaria's largest lender UniCredit Bulbank said that it expects the country's gross domestic product (GDP) to increase by a real 2.6% this year and by 4.4% in 2022, after contracting by 4.2% last year.

In its January macroeconomic update, UniCredit Bulbank said that Bulgaria's real GDP is forecast to rise by a real 2.7% in 2021 and by 4.5% in 2022.

"New restrictions caused Bulgaria’s economy to get off to a weak start into 2021. Vaccines and medical treatments for COVID-19 are expected to support a gradual recovery in the second half of 2021," the most recent macroeconomic update of the bank read.

The bank expects Bulgaria's economic activity to recover to its pre-crisis level in the middle of 2022, while full employment is not likely before the end of 2023.

A significant rise in Bulgaria's unemployment rate is likely to occur later in 2021, when a phasing out of job-retention schemes should begin. This will require the reallocation of labour and capital away from services and towards goods-producing sectors, UniCredit Bulbank also said.

To address this challenge, spending on active labour-market policies will have to be increased and directed more toward training programs that are specifically targeted at those workers who are most at risk of dropping permanently out of the labour force, the bank noted.

UniCredit Bulbank said that it does not expect the economic policy of Bulgaria’s new government to deviate significantly from the current path after the general election on April 4.

"The next government is likely to pursue a moderately conservative fiscal policy no matter who wins the election," the bank added.

According to UniCredit Bulbank, fiscal policy is likely to play a more constructive role in 2021, as the country has plenty of firepower on the fiscal front, and there are signs that the authorities are learning how to use it more effectively. The size of fiscal support is likely to rise to 4.0% of GDP this year, from 3.1% last year, the bank said.

Regardless of who wins the next election, public-sector wages are likely to continue growing at a pace close to that seen in the past several years, the lender also said, adding that such a policy is unlikely to pose a major risk to competitiveness in the short run.

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