EBRD LOWERS ITS FORECAST FOR BULGARIAN ECONOMY FOR THIS YEAR

The European Bank for Reconstruction and Development (EBRD) lowered its forecast for Bulgaria’s economy for this year, but raised it slightly for 2022. According to the latest report of the bank Regional Economic Perspectives, the country’s economy will expand by 4,2% this year, which is 0,3 percentage points lower than the previous forecast from June.

As for next year, economic growth is expected to reach 4,4%. By comparison, previous forecasts were for an expansion of 4,0%. According to the report, the per capita income in the country has reached the levels of the fourth quarter of 2019 in the second quarter of 2021.

The bank notes that although GDP expanded by 3,1% on an annual basis in the first half of 2021, the momentum of recovery slowed in the second quarter. Private consumption accelerated in the second three months of the year amid easing pandemic measures and strong wage growth. At the same time, however, the recovery in investment remains weak, at around 7% below pre-crisis levels.

Exports of goods finally recovered to a greater extent in the second quarter of 2021 after modest data for the same period a year earlier. Exports of services showed a strong performance during the period, increasing by 45%, which, however, was not enough to close the gap with pre-crisis levels.

According to the report, the risks to the country are related to low levels of vaccination and the ongoing political crisis.

Regional perspectives

Overall, for the 37 countries in the EBRD’s region, the bank is raising its forecast for 2021 to 5,5%. This represents an upward correction of as much as 1,3 percentage points compared to the June forecast and is due to the strong performance in the first half of the year, but the bank warns that serious risks are ahead.

EBRD Chief Economist Beata Javorcik said: “This is a bittersweet recovery. The first half of 2021 brought a robust rebound. But we are now seeing growing cause for concern. While high commodity prices benefit exporters, they weigh heavily on the trade balances of importers. The supply of affordable energy as we enter the winter period is becoming a serious worry, especially since governments’ headroom is limited.”

More widespread inflationary concerns may bring forward policy tightening in advanced economies, making debt burdens more expensive to service, the report warns. Travel restrictions and lingering fears of contagion continue to weigh on the outlook for the tourism sector. While bankruptcies have so far remained contained, further vulnerabilities may surface once policy support is reduced.

Output in central Europe and the Baltic states is expected to increase by 5,2 per cent in 2021 and 4,7 per cent in 2022, reflecting better-than-expected results in the first half of 2021, although supply chain disruptions weighed on growth in some economies.

In the south-eastern European Union GDP is expected to grow by 6,7 per cent in 2021 and 4,3 per cent in 2022. These figures reflect a significant upward revision to growth in Greece, although tourist arrivals remain below their 2019 levels.

Output in the Western Balkans is expected to grow by 6,4 per cent in 2021 and 4 per cent in 2022. The region saw significant upward revisions, reflecting better-than-expected performance in the first half of the year, including in the tourism sector, as well as strong export demand from the EU market.

However, expectations for most countries for next year remain largely unchanged or slightly lowered.