The slowdown in the growth of Bulgaria’s economy, forecast today by the European Commission, shows the existence of systemic or structural distortions in Bulgarian economic policy. This was commented for BTA by Dr. Shteryo Nozharov, a lecturer at the University of National and World Economy and an economic adviser at the Bulgarian Industrial Association.
According to the EC’s autumn economic forecasts published today, Bulgaria’s economic growth for 2021 is expected to be 3,8 percent. In its July report, the European Commission set a rate of 4,6 percent for our country this year.
According to the economist, the situation in 2021 would be repeated if a stable government is not formed now and a budget for 2022 is not adopted before it begins. “If monetary and fiscal macroeconomic policies remain so timid and inertial, I am also pessimistic that in 2022 we will achieve GDP growth of over 4 percent in the conditions of a recovering Europe”, the economist commented.
According to Nozharov, the Eurozone economy is growing and will grow faster than expected, as it is recovering effectively from the recession caused by the pandemic. He cites data from the European Commission, according to which the gross domestic product in the 19 countries sharing the euro will grow by 5 percent this year (compared to 4,3 percent so far - May forecast) and is expected to grow by 4,3 percent in 2022 and 2,4 percent in 2023. Against this background, Bulgarian GDP, which is much lower than the average for euro area member states and in the position of catching up, instead of growing much faster (due to the so-called beta-convergence), is slowing down from a projected 4,6 percent for 2021 to 3,8 percent, the expert commented and added that this delay indicates the presence of systemic or structural distortions in Bulgarian economic policy.
“The easiest explanation for them is the exogenous (external) influence of COVID, but is it really so? The pandemic is spreading globally, it is also affecting the Eurozone countries,” the economist said. Therefore, in his words, Bulgaria can hardly use the apology for force majeure circumstances in its economy. He pointed out that GDP growth of 3,8 percent in terms of budget deficit is a real growth of about 1,9 percent.
The reasons for these expectations for Bulgaria’s economic growth can be found in the turmoil in macroeconomic policy in the last year. In the first place, the economist puts the impossibility of conducting neither monetary policy - because of the currency board, nor fiscal policy - because of the lack of a legislature (parliament). “In this situation, our economy has been moving by inertia for almost a year”, Nozharov said.
The second reason, according to the economist, is low direct investment. “Nobody wants to invest in the medium and even short term in an economy whose energy base is mainly based on fossil fuel energy. As early as 2025, which is only a few years away, the EU will stop the possibility of state aid in this sector. And energy is a major input for industry, transport and almost the entire economy. Here we are not even talking about a horizon of 2030, but of 2025,” the economist commented.
A third factor in the reduced growth forecast for the Bulgarian economy, according to Nozharov, is the lack of reforms in the healthcare sector, as well as in social security, which has reduced the possibility of a flexible response during the pandemic. “The reaction to the health crisis remains ineffective and makes Bulgaria’s investment bad for advertising, given its top spot in the world mortality rankings,” the economist said.
Another reason for the reduced forecast for Bulgaria is inflation. Initially, it was seen as a sign of recovery and not as a sign of starting moderate stagflation (and in a budget deficit), which led to a wrong reaction to it, which instead of stimulating supply, began to stimulate demand, the expert commented. According to him, partial stimulation of employment is not stimulation of supply. Nozharov reminded that BIA had already warned about this on its website. According to Nozharov, this wrong assessment has worsened the situation. “Thus, rising prices will reduce consumption, and the lack of private investment in the manufacturing sector will be further exacerbated by inflation-constrained consumption,” the economist said.
According to Nozharov, the mixed signals for tax preferences and income indexation have hindered the normal economic rhythm and are also among the reasons for the lower assessment of economic growth. These signals have led both consumers and producers to expect a comprehensive overhaul of both tax policy and social transfers, which has led to caution in investment and consumption, the expert added.
According to him, the negative effects of the revised assessment of our growth should include the expectations for a deficit in 2022, which have begun to confuse investors, as well as the growing shortening of the maturity of the issued debt.
