EC revises up Bulgaria's GDP forecast to 2.8% growth in 2011.

By bne IntelliNews May 16, 2011
The EC published its spring forecast revising Bulgarias GDP growth projection upwards to 2.8% this year from 2.6% in the autumn report. The economy is to shift to more balanced growth, which will speed to 3.7% next year (slight downward correction from 3.8% in the autumn forecast). Both domestic and foreign demand are to contribute positively as a result of improved labour market, FDI inflows increase and a sustained recovery of the world economy. Exports is to impact positively domestic demand as it will create new jobs while the accumulated precautionary savings will fuel private consumption. However, lower income growth, weak credit activity (largely linked to deposits growth) and soft employment are expected to press down the recovery. The EC sees the investment as the main growth factor backed by EU funds utilisation, the highway and energy projects, the government privatisation programme and the improved business confidence. Despite the expected domestic demand recovery exports growth is to continue outpacing imports expansion in the near future. The EC expects the labour market to improve slightly bringing down the unemployment rate from 10.2% last year to 9.4% this year and 8.5% in 2012 but its poor functioning will turn the re-integration of the low-skilled and the young into the work force into a major challenge. Wages growth is seen broadly in line with productivity developments and the public wages freeze will serve as an anchor for the private sector ones. EC notes that containing inflation, which has been rising with global trends, will be a key challenge to maintain external competitiveness. The EC comments that the risks before the forecast are broadly balanced with major risk the uncertainty of the consumption behaviour, both on the upside and the downside. The labour market performance with its persistent structural problems will strongly affect the pace and sustainability of the recovery. The EC expects the budget deficit to narrow to some 2.75% of GDP in 2011 and 1.5% of GDP in 2012 as the changing growth composition will affect revenues positively and the government is expected to continue the consolidation. The budgetary forecast risks are also balanced inflation may push up revenues but expenditures may be also higher given the delayed recovery in employment.
2007 2008 2009 2010 2011 2011 2012 2012
November forecast May forecast November forecast May forecast
GDP (%, y/y) 6.4 6.2 -5.5 0.2 2.6 2.8 3.8 3.7
HICP (year-average, %) 7.6 12 2.5 3 3.2 4.3 3.1 3.4
Unemployment (year-average, %) 6.9 5.6 6.8 10.2 9.1 9.4 8 8.5
CA balance (% of GDP) -25.2 -23.2 -9 -1.5 -2.5 -2 -2.3 -2.6
General budget balance (% of GDP) 1.1 1.7 -4.7 -3.2 -2.9 -2.7 -1.8 -1.6
Public debt (% of GDP) 17.2 13.7 14.6 16.2 20.2 18 20.8 18.6
Source: European Commission

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