Bulgaria's real GDP growth decelerated to 0.2% y/y in the second quarter of 2013 from 0.4% in Q1, according to the flash estimate of the statistics office. Household spending contracted 1.3% y/y in Apr-June, weighing on overall economic growth. Public spending increased by 1.9% y/y and helped push total consumption up by 0.3% y/y. Gross capital formation increased 1.8% y/y in Q2 after climbing 5% in the previous quarter.

Exports growth slowed significantly to 2.2% y/y in Q2 after a robust 10.8% increase in the previous quarter. Signs that the euro zone has emerged from recession suggest exports may strengthen in the second half of the year. The decrease in domestic demand affected imports and they rose by only 1.1% in Q2 after posting a 5.6% y/y increase in Q1.

Quarterly seasonally-adjusted GDP data showed that Bulgaria's economy contracted 0.1% in Apr-June.

Private demand will likely remain low. Other grounds for caution include disappointing trade figures and weak industrial output data. The overall business climate indicator has been declining since March as companies remain downbeat about the economic environment and domestic demand. The agriculture and tourism sectors will buoy growth in the third quarter. Other than that what could support GDP growth in the short term is more government spending as the cabinet of PM Plamen Oresharski plans to increase its 2013 expenditures by BGN 286mn (EUR 144.7mn, representing 0.3% of the projected year-end GDP). However, this will happen in the fourth quarter of the year and only if the parliament votes in favour of the vetoed budget revision bill that proposes raising state expenses.