Bulgarian Growth to Miss Government Estimate, Eurobank Says

By Elizabeth Konstantinova

Bloomberg agency

Bulgaria's economy will grow 2.5 percent this year, less than a government forecast, because of rising unemployment and low household demand, EFG Eurobank Ergasias SA (EUROB) said.

Gross domestic product expanded 0.3 percent in 2010 after a 5 percent contraction in 2009, driven by industrial output and exports. The government forecasts 3.6 percent growth this year. Unemployment, at 10.1 percent in January according to Eurostat, will erode consumption and slow the economy, Eurobank, Greece's second-largest lender, said in an e-mailed report today.

Bulgaria is recovering from its worst recession in more than a decade after a three-year lending boom stalled and foreign investment dried up during the global credit crisis. The European Union's poorest country in terms of per-capita GDP is counting on government spending and demand for its exports in metals, machinery, textiles and furniture to drive growth.

"This remains a jobless recovery, particularly in the non- tradable sectors such as services," Eurobank said. "As a result, domestic households remain extremely cautious on their spending decisions, continuing to repair their balance sheets."

Individual consumption, which accounts for 73.5 percent of GDP, fell an annual 1.4 percent in the fourth quarter after a 5.9 percent drop in the third quarter, according to the statistics office.

Eurobank also sees "significant downside risks stemming from a relatively high private-sector external indebtedness" and increasing non-performing loans, according to the report. Bulgaria's foreign private-industry debt fell to 89.4 percent of GDP from 96 percent in 2009, it said. Non-performing loans accounted for 11.9 percent of bank portfolios in December, after 10.6 percent in September.

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