Macro Watch: Bulgaria will end 2012 with 0.5% growth and 2% budget deficit

”Bulgaria will end this year with a growth of 0.5 - 1% and a budget deficit of 2.02% of GDP,” stated an economist from the Macro Watch group yesterday. “The external risks, which threaten the Bulgarian economy, will continue in 2012 as well, but the internal ones should also not be ignored,” said the experts further. An economic growth of 2.9% and a budget deficit of 1.35% were set for 2012, but the GDP growth was revised to 1.4% in the latest version of the National Reform Programme 2012-2015.

According to Desislava Nikolova, Chief Economist at the Institute for Market Economics, the decline in exports will be the major risk the country faces this year. “The recession, which started in the EU, affects the Bulgarian exports and industry - in the last 4 months the production activity decreased,” she added. According to economists, the Government’s measures in case of a GDP growth below 1% are unclear, as the budget was calculated on the basis of higher growth. They demanded an action plan for GDP growth of less than 1% to be published.

According to them, half of the planned deficit for 2012 was implemented in the first two months of 2012, but this was due to the seasonality of payments. Official data of the Ministry of Finance shows that by the end of February the budget deficit reached BGN 565 mln, given that for the entire 2012 it was set to BGN 1.09 bn. “It is possible that the planned budget deficit for 2012 would be exceeded,” experts warned.

Dimitar Chobanov commented that in the National Reform Programme, the GDP forecast had been revised to BGN 3 bn and it would reach just over BGN 78.5 bn. “The budget deficit will be 2.02% of GDP at the end of the year, or BGN 1.59 bn,” added the expert. According to him, the income (BGN 3.8 bn) and the expenditures (BGN 4.5 bn) related to the EU funds set in the 2012 budget are too high and we will not be able to cover them. As a result, there will be an additional deficit of BGN 405 mln at the end of December.

Georgi Ganev, Program Director at the Center for Liberal Strategies, highlighted the danger of deflation, stating that price increases in certain sectors trigger accumulation of deflation in others, due to which the nominal income to GDP ratio cannot grow.

According to data, presented by Ganev, in 2008 Bulgaria was a net creditor and in the last quarter of 2011 a nominal decline in GDP was recorded. Economists expect in the coming months capitals to flow out of the country and the Direct Foreign Investment to remain low.

Oil prices also pose a danger

The high monthly average oil prices are another major threat to the national economy, as the situation remains uncertain, mainly because of Iran. “On the one hand, this exerts a direct effect on household incomes, but also an indirect impact on the entire economy because of the danger of recession,” said Georgi Angelov, Economist at the Open Society Institute.

Experts explained that election campaigns and fulfilment of promises on the part of the Government would endanger the budget implementation further, especially if they start this year. According to Angelov, the statement that the crisis is over and everything is under control in Europe is simply not true. Economists fear that it is likely that next year the Government will raise the pensions by 3-4% and increase the minimum wage, as the previous Government did, for which there is actually no money.

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