Bulgaria’s next government to invest in a more meaningful growth recovery – report

Written by on March 29, 2013 in Bulgaria, Business, News - No comments

Bulgaria’s economy is expected to grow stronger in the second half of 2013, once the political uncertainty caused by early elections is lifted, but also because “the next government is expected to invest more to start tackling the poverty problem,” UniCredit Research said in its latest CEE Quarterly report.

Early indications for economic activity in January have been moderately encouraging, supporting UniCredit’s fundamental view that gradual recovery will be led by individual consumption and, to a lesser extent, by exports and gross fixed capital formation, the report said.

Fiscal austerity took excessive proportions in the last quarter 2012, when the outgoing government overshot its end-year deficit target by an amount equivalent to 0.8 per cent of the country’s gross domestic product. “But when what started as street protests against fiscal austerity and deteriorating living standards forced the right-wing GERB government to resign only four months ahead of the next general elections, it became clear that the policy needs to change,” UniCredit said.

“It was the failure of the outgoing government to boost growth and create jobs which finally put social and political stability of the country to its most serious test since the anti-corruption protests in early 2009. Growth is likely to take centre stage as a result and become the number one policy priority for the next government, regardless of its composition and how broadly based the governing coalition is,” the report said.

The next government’s economic growth policy was likely to combine sound macroeconomic policies, accelerating structural reforms and using as much EU structural funding as possible, according to UniCredit.

“More than anything else, these fiscal stimuli need to focus on productive investments that have the strongest potential to improve the capacity of the economy to produce more goods and services in the long run, while also boosting demand in the short run,” the report said.

Bulgaria’s fiscal position, including the budget deficit and public debt – the result of the outgoing government’s ability to consolidate public sector finances without resorting to any major tax increases – offered “sufficient space for a moderate and risk-free increase in fiscal expenditures, in case these are channelled into initiatives that improve competitiveness and help to start addressing the poverty problem.”

UniCredit said that it did not expect the resignation of the government to have a major impact on Bulgaria’s long-term ability to attract foreign investment, since it came at the very end of the cabinet’s term. “Of course, we are likely to see marginally weaker capital inflows (including somewhat softer foreign direct investment numbers) this year as the ‘wait and see’ approach that investors usually take in the run-up to elections will now continue somewhat longer,” the report said.

UniCredit said that it maintained its economic growth forecast for 2013 and 2014 unchanged at 1.7 per cent and 2.8 per cent, respectively.

(Photo: Sanja Gjenero)

Comments

comments

About the Author

The Sofia Globe - Bulgaria’s fully independent English-language news and features website, run by an all-expatriate team. Sign up to subscribe to sofiaglobe.com's daily bulletin by using the form on the homepage of our website. Please click to support our advertisers!