Bulgaria 2012 Growth Forecast Unanimously Capped at 1.5%

Finance | April 9, 2012, Monday // 11:12|  views

A beggar man counts his coins in front of a cash machine in Sofia, Bulgaria. The country has so far managed to weather the global crisis without foreign aid. Photo by EPA/BGNES

Bulgarian analysts and institutions have cut their growth forecast for 2012 to just below 1.5% instead of the previously forecast 2-3%, citing slumping exports and stagnant domestic demand.

Exports to the European Union, the main driver of Bulgaria's economy, declined in the last quarter of 2011 because of the euro-area's debt crisis. Their growth in 2012 has been set at just 0.1%.

This has left domestic demand as the major driving factor behind the economy, but expectations are that it will remain subdued due to a rising unemployment rate and a drop in investments, suggesting a further slow-down in the country's recovery this year.

"The recent developments on the labor market suggest that the unemployment rate will rise, while it will become more and more difficult for those who have a job to keep it," Petar Chobanov from the Institute for New Economic Progress commented for Capital daily.

"These prospects, coupled with the expected utility hikes, make consumers wary of spending and they rein in expenses," he added.

Chobanov does not rule out a recession in Bulgaria, a scenario other more moderate analysts dismiss as far-fetched.

"It is indicative that Bulgaria's economic recovery slowed in the fourth quarter of 2011 in nominal value on an annual basis. This shows potential for a further slow-down, which combined with a lack of investments, does not bode well for the economy's long-term prospects," according to Chobanov.

Meanwhile the central bank BNB estimated Bulgaria's economic growth to slow-down to 0.7% in 2012, citing the sovereign-debt crisis in the euro area.

"Slower economic expansion will restrict loans and banks' potential to generate profit through lending," central bank Governor Ivan Iskrov said in a speech in Sofia last week.

"Curbed demand for new loans will further slow-down economic expansion, which will have a negative impact on employment rates and living standards," he added.

Bulgaria's government and the European Commission recently revised downwards their forecast for the economy of the Balkan country, estimating it is to grow 1.4% this year due to worsening growth prospects in key trading partners across Europe and stagnant domestic demand.

Bulgaria's economy expanded by 1.7% in 2011.

Growth slowed down to 1.6% in the fourth quarter of last year, curbed by slumping exports, according to data of the statistics institute.

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Tags: domestic demand, forecast, growth, Bulgarian, exports, current account, recession, Eurozone, Bulgaria, employment, unemployment, direct foreign, investments, economic growth, GDP, loans, fiscal reserve, budget deficit, euro, area, 2012, EU, European Union


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