EU raises Bulgaria’s growth forecast, but outlook remains bleak

By bne IntelliNews May 5, 2015

The European Commission revised up its projection for Bulgaria’s GDP growth in both 2015 and 2016, but the outlook remains gloomy amid an expected slowdown in public investment and continued weak private investment.

According to the spring edition of its European Economic Forecast, the Commission expects the southeast European country's economic growth to slow to 1% this year from 1.7% in 2014, before picking up slightly to 1.3% next year. In February, the EC projected a 0.8% expansion for 2015 and a 1% growth for 2016.

Private consumption is anticipated to decelerate this year, reflecting weak wage and employment growth, and to remain depressed also next year. Private investment is set to stay subdued, amid lingering uncertainty, aggravated by the domestic financial sector turbulence in 2014, which is likely to continue to weigh on credit activity and investment decisions.

The Commission expects the contribution to growth of public investment to turn slightly negative in 2015, as the 2007-13 programming period is coming to an end and the government looks to implement consolidation measures. Public investment will likely weaken further next year because of the time needed for implementing EU co-financed projects under the new operational programmes.

On the other hand, net exports are expected to have a positive contribution to growth in 2015 and 2016, as international demand increases and the euro depreciates, stimulating exports to non eurozone countries. At the same time, imports are seen staying modest amid weakening domestic demand.

Bulgaria's government projects GDP growth of 1.4% this year and 1.7% in 2016. The IMF sees it at 1.2% and 1.5%, respectively.

The EC expects the HICP deflation to moderate to 0.5% in 2015 from 1.6% in 2014 and to turn to an inflation of 1% in 2016. The current account surplus is projected to widen from 0.9% of GDP last year to 1.3% this year, and then to narrow to 1.2% next year.

EC spring forecast for Bulgaria      
(annual percentage change) 2014 2015 2016
GDP 1.7 1.0 1.3
Private consumption 2.0 1.0 1.5
Public consumption 3.8 0.1 1.1
Gross fixed capital formation 2.8 -1.7 -2.9
Exports (goods and services) 2.2 3.1 4.0
Imports (goods and services) 3.8 2.0 3.0
Contribution to GDP growth:      
- Domestic demand 2.5 0.3 0.5
- Inventories 0.3 0.0 0.0
- Net exports -1.1 0.7 0.7
Source: European Commission      

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