UniCredit: Bulgarian economy improving, growth remains weak

Written by on September 25, 2012 in Bulgaria, Business, News - No comments

Bulgaria’s economic outlook improved in the third quarter of 2012 despite the stumbling global economy, Italian banking group UniCredit said in a research note, maintaining its gross domestic product (GDP) growth forecast for Bulgaria at 0.5 per cent this year and 1.5 per cent in 2013.

“Several important indicators – such as the price and availability of corporate loans, bank capital flows and the equity portion of FDI, moved in a growth-friendly manner. As all these were largely incorporated in our projection already, we decided to keep our GDP growth forecast unchanged,” the bank’s analysts said in the latest Central and Eastern Europe Quarterly report.

Although economic growth was “lackluster” in the second quarter at 0.5 per cent in annual terms for a second straight quarter, it was encouraging to see that it was caused by stronger individual consumption and exports, the report said.

Equally encouraging was that the country’s economy should begin showing more signs of recovery next year. “With the financial market tensions hopefully not escalating much further, Bulgaria should increasingly win back foreign investors’ confidence,” the report said.

“The planned increase in the minimum salary and pensions, after the latter have been kept frozen over the last three years, should alone boost the average households’ income by a nominal three per cent, while weaker food prices pressure should boost purchasing power.”

[pullquote2 quotes=”true” align=”center” textColor=”#000000″ cite=”UniCredit CEE Quarterly”]Amid signs that there are no risks to the government’s 2012 budget deficit target of 1.35 per cent of GDP, attention has shifted to the draft budget plan for 2013. The plan focuses on striking the right balance between what is needed to preserve fiscal discipline (which is central to the government’s strategy to win investor confidence) and measures to increase pensions and the minimum wage (to boost the ruling party’s approval rating ahead of general elections in mid-2013). We think such a plan is challenging but doable. As the draft 2013 Budget is in an early phase of preparation, there are only sketchy details as to its underlying macro assumptions. Finance Minister Simeon Dyankov said that the economy will expand by 1.8 per cent next year – in line with consensus and only three tenths above our own forecast. At the same time, there is more clarity as to the scale of pension increases which, as a guiding principle, should fully compensate for the cumulative consumer price index since [the current Cabinet] took office in 2009.[/pullquote2]

UniCredit also said that investors’ risk appetite was gradually returning, reflected in the moderate increase in equity capital inflows, a positive reversal of bank flows and improved availability and costs of corporate credit.

Even more encouraging, after decreasing by just 11 basis points for the whole 2011, the average interest rate on corporate loans fell by 27 basis points in the first quarter and a further 20 basis points in the second quarter, the report said.

(Photo: Sanja Gjenero)

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