Bulgaria GDP May Fall by 5% in Q1, Industrial Chamber Warns

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

Bulgaria's economy may shrink drastically by 5% in the first three months of the year, the country's Industrial Chamber has warned.

"Given the looming decline in GDP for the first quarter of 2012, we expect the budget deficit to be significantly higher than envisaged in the budget, putting at risk public investments and the payment of pensions," according to the business chamber.

Bulgaria's Industrial Chamber point out a number of factors, drawing the economy into negative territory, including a sharp decline in domestic consumption, industrial production, investments and increasingly negative trade balance.

The gloomy forecast comes shortly after a Sofia-based think-tank warned that Bulgaria's economy hovers on the brink of its second recession in three years in the wake of the slump in the euro zone,

Bulgaria's economy is expected to shrink in the first quarter of 2012, to be followed by a few more quarters of falling output, entering a technical, recession, the Institute for Market Economics (IME) forecast at the beginning of this week.

This would be the second recession in Bulgaria in just three years.

Tumbling levels of exports and industrial production show that Bulgaria's economy is already feeling the chill from the euro zone, according to the experts.

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.

"It is high time that the Bulgarian government presented updated forecasts for the economy's growth this year and start taking measures to adapt the state budget to the all so realistic recession scenario," Dessislava Nikolova from IME wrote.

Economists say the most troubling indicator is that in the period January -February 2012, the total value of the exported goods reached almost BGN 5.7 B, down by 6.1% on an annual basis.

Bulgarian exports to third countries also decreased, marking a 2.6%  fall compared to the corresponding period of the previous year and amounted to BGN 2.3 B.

Exports, which used to be the driver behind Bulgaria's recovery, are slumping and in the best possible scenario can record a negligible growth or remain flattish, according to analysts' forecasts.

A mix of global slow-down, restricted financing and withdrawing investors have brought Bulgaria's construction sector to a stalemate and according to the analysts it has been sliding ever more firmly into negative territory for the fourth year in a row with little hope for revival in the short term.

Bulgaria's retail market continues to be on a downward trend, despite the retail concentration within malls, which have taken the role of new urban shopping, and leisure centers over the last couple of years.

Data on the visits of foreign tourists in February did not bring the expected joy either. The number of foreign travelers here was down by about 3% on an annual basis after a year and a half of healthy growth. The figures dampened the sector's hopes that the excellent conditions for skiing in February will attract many foreign tourists.

Earlier this month Bulgarian analysts and institutions unanimously 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.

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.

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.

The European Union newcomer entered recession for the first time in the first quarter of 2009 with its economy shrinking 5% from January to March 2009 and contracting 1.6% in the fourth quarter 2008 on a quarterly basis.

In the first quarter of 2009 Bulgaria's GDP marked a 3,5%  drop on an annual basis for the first time since the financial and economic crisis in 1997 and the slump was much sharper than macroeconomists' forecasts.

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