Shteryo Nozharov, economic advisor at BIA, to Bloomberg TV
The revised BNB forecast that Bulgaria's economic growth will slow to 1% in 2023 (compared to 3.4% in 2022) is mainly due to factors such as a decrease in government consumption in real terms, a slowdown in private consumption growth and the maintenance of a negative contribution of net exports. The forecast for average annual inflation to reach 8.7% falls within the range of forecasts by international institutions. The projected GDP growth is below the 1.4%-1.5% expected by the World Bank and the IMF, and although typically conservative for the BNB, it is almost twice less than the 1.8% growth forecast in the budget, which calls into question its implementation. This was said by Shteryo Nozharov, economic adviser at BIA and lecturer at UNWE, in a comment on the latest BNB forecast for Bulgaria's economy, on the air of Bloomberg TV.
"With such high expected inflation, the assumptions are only one percent growth. When an economy achieves only 1% growth with very high inflation, it is practically a recession," Nozharov said and gave the example of Romania, where with similar inflation, growth of GDP for 2023 of 3.2%. "Obviously, there is something deeply wrong in the Bulgarian economic policy."
The most serious risks to inflation remain geopolitical risks and the war in Ukraine. Reliance on energy and critical raw materials outside the territory of the US, the EU and their allies and increasing regionalization will continue to impact countries like Bulgaria that are dependent on these raw materials and intermediate goods, Nozharov said. It is not expected that there will be a strong deterioration of the economies of Bulgaria's main partners in the EU, except for Germany.
BNB predicts 0% labor productivity growth in 2023, but 12% wage growth. This pro-inflationary factor is driven by the contraction of the active labor force and expectations in the public sector, Nozharov said.
"We have an aging population, a shrinking active labor force, poor management of pension funds and the social security system, and an insufficiently modernized, more labor-intensive economy. In this situation, in order to maintain a competent workforce, employers increase wages consistently far above labor productivity. This is how the labor market will move in the future as well. What deforms this type of system is that Bulgarian education is of low quality."
According to the World Bank and the IMF, if Bulgaria wants to maintain its ability to reach the average level for the EU in the next 15 years, the country must strongly and rapidly increase the quality of education, thereby increasing labor productivity, said Nozharov.
Private gross domestic investments in Bulgaria in 2023 will decrease, although total investments will increase on the basis of the absorption of funds from the EU and PPU funds, according to the BNB forecast. Investments in the country are only about 20% of GDP, and for Bulgaria to catch up with the EU average, they should be at least 35% of GDP, Nozharov said.
"Income is a function of investment, not the other way around. If we don't invest, there will be no income. If we only increase income at the expense of investment, we will be poorer and poorer."
