3 Scenarios for the Bulgarian Economy by 2020: Good, Bad and very Bad

Opinions | March 1, 2019, Friday // 12:43|  views

"There will surely be an economic downturn, but how much depends on the combination of external and internal factors "

If you are wondering where the Bulgarian economy is going to go in the next two years, this sentence gives a clear answer.

The opinion of the Finance Professor Assoc. Bobeva, who gave a public lecture on the topic "A new economic crisis in Bulgaria - when and why?" During a forum at the Higher School of Insurance and Finance, according to which three scenarios are outlined for the development of the Bulgarian economy by 2020 - moderate growth, penetration of stagnation at short downturns or economic crisis.

The worst case scenario could come true "at the earliest in 2020", with several key points: a significant slowdown in the global economy, a recession in the eurozone as early as this year, a deterioration in Bulgaria's exports and a significant drop in industry, as well as a possible rejection of the country's bid for the eurozone waiting room. The second option is slow down of the economy but without reaching a crisis (at least two consecutive quarters of GDP decline). Here again the key role played by the international conjuncture is the slowing of the global growth and decline in the European economy, which will reduce the growth of Bulgarian exports and domestic demand. The accumulation of imbalances in the economy along with the postponement of eurozone membership would also contribute in this direction. According to Bobeva, the most optimistic scenario for Bulgaria would bring a short-term growth of 2.5-3% only if the European economy slowed slightly and quickly recovered in 2020. The adoption of the country in the ERM2 mechanism combined with more foreign investment and counter-cyclical economic policy would keep the Bulgarian economy above the surface.

In the last 15 years the growth of the economy has been driven by different engines - in the period 2004-2007, foreign investments are the leading ones, the outflow of which has significantly worsened the country's economic performance. After the crisis 2010-2016, the Bulgarian economy was driven mainly by exports and, since 2017, by domestic demand. According to the lecturer, "domestic demand will remain a major driver of growth, but the deterioration in the external environment will cause businesses to revise their plans for expansion, wage increases and borrowing." Such a situation could extinguish consumer optimism and change attitudes to higher consumer spending. If we also add to the slow domestic consumption and slowdown in exports, which is the second major driver of growth in recent years, we can also expect a slowdown in the whole economy.

"Countries must fix their roof sover the last two sunny years" - this advice to the world comes from the International Monetary Fund. But the question is how to prepare?

According to Bobeva, the following policies should be pursued:

Active counter-cyclical policy;

Prioritize reforms with a positive effect on growth;

Promoting exports and rapid reforms in the state-owned sector;

Stimulating healthy growth;

Maintaining a robust macroframe supported by the positive results of entry into ERM II;

Significant reduction of corruption and administrative burden;

Radical change in policy to attract foreign investment;

All this should strengthen the country's preparations for worse economic times.

"There are buffers in the economy, but a deterioration may occur in a short period of time," the lecturer warns.