Bulgarian economic recovery to remain slow in 2014 – UniCredit

Written by on March 25, 2014 in Business - Comments Off on Bulgarian economic recovery to remain slow in 2014 – UniCredit

Bulgaria’s economic recovery will continue at a slow pace in 2014, UniCredit Bulbank said in a research note, forecasting 1.5 per cent economic growth in 2014.

The bank said that it expected the main growth driver to be increased exports and “a moderate increase of expenditures related to the utilisation of EU funds”, while the “disappointing tempo of recovery in the households segment” will continue to depress growth.

“It appears that the most important factor is the clearly-expressed unwillingness of consumers to increase their spending. The depressed growth of crediting does not help either, although the lending slowdown in the real economy is linked mainly to the increased real interest rates, rather than the banking sector’s ability to lend more,” the research note said.

In terms of deflationary pressure on economic growth, UniCredit Bulbank said that Bulgaria was not at risk of going into a deflationary spiral – the situation in which a deflationary environment leads to lower production, lower wages and demand, and thus lower price levels, creating a vicious circle of negative growth.

Bulgaria’s consumer price index reached a new record low in February, recording 2.6 per cent deflation on an annual basis.

“Our view on deflation is that it is fed by the significant level of unused capacity in the economy, which is a reflection of the weak economic recovery following a series of shocks, combined with lending slowdown,” the research note said.

A big part of the deflationary pressure came from the bumper wheat harvest last year, which pushed down food prices, and the “series of controversial decisions” to reduce electricity and heating prices for households.

“These factors lead us to conclude that the existing deflationary pressure has a transient character, and once these one-off influences are removed, combined with the gradual economic recovery in our base scenario, the gap between the potential and real GDP will shrink, which will ease the downward pressure on prices,” UniCredit Bulbank said.

The bank forecast annual inflation this year at 0.6 per cent and the average annual inflation at -0.8 per cent (at the end of February, average annual inflation – the average annual inflation figure over the previous 12 months – was -0.2 per cent).

(Photo: Michael Faes/sxc.hu)

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!