EBRD Sets Bulgaria's Growth at 1.8%, Region Recovery Remains Slow

A recovery this year in the regions where the EBRD invests is expected to be slow, despite improvements in the world’s most advanced economies, including in the United States and the eurozone. Photo by EBRD

Bulgaria's economy showed few signs of a sustained recovery in 2013, says EBRD’s latest Regional Economics Prospects report.

Export performance continued to improve but weak internal demand means that growth in 2013 is likely to have been slightly lower than the 0.7 % growth recorded in 2012.

On the positive side, the fiscal deficit is under control and public debt is among the lowest in the EU.

Inflation remains low but this reflects to some extent the series of cuts in utility prices over the past year, which could have negative implications for future investment in the sector.

The bank has revised downwards its forecast for Bulgaria's economic growth in 2014 to 1.8%.

Growth will be driven by exports and some recovery in domestic private consumption, according to the bank.

Bulgaria's 2014 budget is based on an assumption of an 1.8% rise in gross domestic product, while the European Commission forecasts 1.5% after an estimated 0.5% growth in 2013. The economy expanded 0.7% in the third quarter.

A recovery this year in the regions where the EBRD invests is expected to be slow, despite improvements in the world’s most advanced economies, including in the United States and the Eurozone.

The EBRD’s economists see growth in the transition region of a modest 2.7% in 2014, virtually unchanged from the November forecast, and after expansion of 2.0% in 2013.

The EBRD’s latest Regional Economic Prospects report said emerging economies were still suffering from capital outflows that were likely to persist in light of the expected gradual tightening of US monetary policy.

For the first time since 2011 net private capital flows turned negative for the EBRD region as a whole in the third quarter.

“For sustained recovery to take hold, countries in the region need to resume structural reforms and tackle the persistent legacies of the crisis, including high rates of non-performing loans and long-term unemployment,” the report said.

“There are increasingly positive signs in the world economy, especially in the most advanced countries. But the EBRD’s own region is not yet out of the woods and still faces many challenges,” added EBRD Chief Economist Erik Berglof.

“How countries react with policy changes now will determine how their economies respond to further bank deleveraging and adjustments to U.S. monetary policy,” he said.

The latest report also said that cross-border deleveraging appeared to have intensified again, most rapidly in several central Europe and Baltic countries (CEB) and in south-eastern Europe (SEE), a factor that was delaying a resumption of credit growth.

The report did point to a welcome increase in local currency lending in a number of CEB and SEE countries, including Hungary, Poland, Bulgaria and FYR Macedonia. In these countries the availability of foreign currency credit had been hit by the deleveraging process, while local currency credit had moderately grown.

Looking ahead, the report expected only a gradual improvement in external factors affecting the transition region, with a slow and uneven recovery in the Eurozone and a general deceleration in larger emerging markets partly offset by the stronger outlook in the United States and Japan.

It said growth in countries most closely integrated with the Euro area would remain modest even as the negative impact of the Eurozone crisis diminished. In addition to uncertainties linked to the Eurozone, other risks to the outlook include the possibility of a faster deceleration in large emerging markets, especially China.

The report said long-term unemployment rates in CEB and SEE were on average three to four percentage points higher than before the crisis. In line with global trends, inflation rates continued declining in most countries, although Egypt continued to buck this trend.

Overall, the CEB region will probably grow at 2.2% this year, twice as fast as in the previous two years and reflecting the fact that a recovery is finally taking hold in Croatia and gaining momentum in Hungary, Poland and the Slovak Republic.

At the same time, growth remains well below potential and Slovenia is expected to remain in recession on the back of high corporate indebtedness and the need for further bank recapitalisation.

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