UniCredit’s Quarterly Analysis of CEE Economy: Projected Bulgarian GDP growth for 2012 lowered to 1.5%

UniCredit’s Quarterly Analysis of CEE Economy: Projected Bulgarian GDP growth for 2012 lowered to 1.5%

The forecast for Bulgaria's GDP growth rate for 2012 is lowered from 2.6% to 1.5%, as evident from the latest quarterly review of UniCredit analysts on the economies of Central and Eastern Europe. Shrinking of exports and a negative pressure on the labor market is also expected.

The basic reason for the reduced GDP growth forecast are the signals for worsened perspectives for the Eurozone economies, as well as the unexpected dramatic drop of investments in Bulgaria in the third quarter of this year. From an objective point of view, the challenges to the recovery of the Bulgarian economy remain the same as those identified in the previous, September issue of the quarterly economic review. These are the shrinking domestic demand combined with the slow reduction of corporate sector indebtedness and slow recovery of the real estate and the labor markets.

UniCredit economists expect that in 2012 there will be more pressure for shrinking of the corporate sector balance. Besides, the worsening of the external environment will not only limit exports but is also expected to put at risk the labor market stabilization process that started to take shape in the middle of 2011.

MACROECONOMIC DATA AND FORECASTS

 

2009

2010

2011E

2012F

2013F

GDP (Billion EUR)

34.9

36.0

38.3

39.5

41.3

Real economy - change on an annual basis (%)

         

GDP

-5.5

0.2

2.0

1.5

2.7

Consumption

-7.6

-0.6

1.5

1.2

2.0

Fixed investments

-17.6

-16.5

1.1

1.8

4.7

Public costs

-4.9

-5.0

-2.1

-1.6

-0.4

Export

-11.2

16.2

9.3

-0.4

1.8

Import

-21.0

4.5

6.8

-0.7

1.6

Monthly remuneration, nominal (EUR)

311

331

350

361

376

Unemployment (%)

8.4

11.3

12.3

12.2

11.7

The Bank's experts believe that Bulgaria will avoid another recession as the balances of both the public and the household sector remain strong, whereas external demand dwindles, however, still far from the collapse witnessed in early 2009. According to the report, the return of Bulgaria's economy to a normal pace of growth will be a gradual process that will develop over the next two or three years.

The data about Bulgaria's GDP in the third quarter of the year show that the economy starts to suffer due to the escalation of global risks. GDP has increased by only 0.3% on a quarterly basis and by 1.6% on an annual basis, in spite of some isolated positive factors such as the rich grain harvest and the performance of the summer tourist season. UniCredit's analysis shows that the most disturbing fact is the decrease of gross capital formation by 13.5% on a quarterly basis, taking into account that this indicator was growing for three consecutive quarters before that.

"The serious decrease of gross capital formation is due mainly to the escalation of the Eurozone debt crisis, which makes Bulgarian companies take a defensive stance by freezing their investment plans and accumulating highly liquid assets to be able to meet easily their need for external financing", UniCredit analysts say.

Regarding the household sector, it is expected that households will remain cautious too, continuing to keep higher levels of savings which will keep consumer spending down. It is feared that the slower growth rate in Europe will affect negatively not only exports but the labor market as well.

Cash flows have undergone some new pressure in the third quarter of this year, UniCredit economists point out. The incoming cash flows from portfolios and direct foreign investments barely reached EUR 159 mio, while the other sources of funding (including the balance under the errors and omissions heading) saw the second biggest quarterly withdrawal of funds since the beginning of the crisis, totaling EUR 1.1 billion. However, the continuing positive trends in the current account (an excess of EUR 1.4 billion) after all made it possible for the Central Bank's reserves to grow by further EUR 470 mio in the third quarter of 2011. The good news is that in October the banking sector in Bulgaria managed to limit its dependency on external financing to 4.1%, compared to the pre-crisis peak of 17.3% in November 2008, calculated for the net external liabilities / total liabilities ratio.

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