Ernst & Young 2011 forecast: Bulgarian economy to grow by 3.2%, that of the Eurozone – by 2%

Bulgaria’s economy will grow by 3.2% this year and will accelerate to 4.8% in 2012 and 5.6% in 2013, according to the new summer forecast of Ernst & Young. Thus, the expectations of the consultants for 2011 decrease from their previous outlook, published in the spring, when they forecast some 3.3% GDP growth. These expectations are still lower than those of the Bulgarian Government, projecting a 3.6% economic recovery for our country this year.

In Q1 2011, GDP in Bulgaria rose by only 0.5%, or less than the average for 2010. This was due to the extremely low consumption of households and public companies, although exports continued to increase, reporting a quarterly growth of 4.6%, Ernst & Young specified. However, the consultants’ expectations are based on the large catch-up potential of Bulgaria’s economy and its strong results from the period prior the crisis.

The experts also point to risks resulting from the uncertainty of developments outside the country and mostly due to the increased turbulence of European sovereign debt markets, as a restructuring of the Greek government debt looks increasingly probable. If European authorities fail to deal with this situation well, the consequences for the EU could be severe, according to Ernst & Young.

Uncoordinated restructuring of the Greek debt could lead to a significant tightening of lending in the Eurozone and the effect for Bulgaria will be that its banking sector will remain under increased stress and demand for exports will drop. The experts also say that the delay in the recovery of foreign direct investment will have an additional negative effect on the Bulgarian economy. Limited global appetite for taking risks makes it very unlikely for investments to come close to the levels from before the crisis, Ernst & Young experts state.

Although overall growth in the Eurozone will be weak and facing higher risks of delay, some countries are expected to develop better in the next few years. GDP in “core” countries, such as Germany, France and the Netherlands, is forecast to grow by 2.2% a year on average from 2011 to 2015. This growth rate is slightly higher than in the decade before the crisis, Ernst & Young experts specify.

The expectations for countries from the periphery such as Portugal, Ireland, Greece and Spain are just the reverse. GDP there will be increasing by only 1.2% in the next five years, which is even lower than half the growth pace from the decade prior the downturn. Thus, the recovery of the Old Continent will be progressing at two different speeds. Business services are among the sectors with the best prospects in the single-currency union. Manufacturing is also expected to recover faster than the economy as a whole, benefiting from the great external demand for goods from the Eurozone, especially on the part of emerging markets.

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