The European Commission’s autumn forecast for the EU economy, released on November 9, estimated that Bulgaria’s economy would continue growing strongly in 2017, raising the EC’s growth target by a full percentage point compared to the spring forecast, to 3.9 per cent.
This repeated last year’s pattern, when the EC repeatedly revised its estimate for Bulgaria upwards and, in the end, the actual gross domestic product growth figure ended up exceeding the final forecast by 0.1 percentage point, reaching 3.4 per cent growth.
Domestic demand was the main driver of growth with both private and public consumption projected to expand strongly in 2017, while last year’s “significant contribution” to growth from net exports was set to diminish this year, as imports grew faster than exports, the EC said.
“The contribution from investment is expected to turn positive, as investment slowly recovers from its 6.6 per cent drop in 2016. Net exports, which performed very well in 2016, are losing momentum as higher domestic demand is fuelling a rise in imports and exports are slowing down,” the EC forecast’s country section on Bulgaria said.
The EC also forecast 3.8 per cent growth for Bulgaria in 2018 (up from 2.8 per cent in the spring forecast) and 3.6 per cent in 2019.
Other macroeconomic indicator trends forecast by the EC for the Bulgarian economy included a decline in its current account surplus, from 4.2 per cent of GDP last year to three per cent in 2017 and 2.4 per cent next year; inflation turning positive to reverse the deflationary trend in place since 2013; and a balanced Budget for a second consecutive year (compared to the spring estimate, which forecast a deficit of 0.4 per cent of GDP in 2017).
Regarding potential risks for Bulgaria’s economy, the EC said that “a slower utilisation of EU funds could moderate the contribution of investment to growth”, while increased tax revenues could create pressure for “additional wage increases, as well as for public investment fully outside the EU funds programmes.”
The sharp increase in Bulgaria’s growth outlook was part of a larger, overall positive, picture. For the EU as a whole, the Commission raised its growth forecast to 2.3 per cent, up from 1.9 per cent in its spring forecast. The euro zone, meanwhile, was expected to grow at the fastest pace since the global financial crisis, reaching 2.2 per cent in 2017, “substantially higher” that the 1.7 per cent forecast in spring.
For the EU as a whole, the Commission forecast economic growth in 2017 at 1.9 per cent, up from 1.8 per cent in the winter forecast released in February. The euro zone, meanwhile, is expected to grow by 1.7 per cent this year, an increase of 0.1 percentage points compared to the previous estimate.
“After five years of moderate recovery, European growth has now accelerated. We see good news on many fronts, with more jobs being created, rising investment and strengthening public finances,” economic and financial affairs commissioner Pierre Moscovici said in a statement.
“Yet challenges remain in the form of high debt levels and subdued wage increases. A determined effort from member states is needed to ensure that this expansion will last and that its fruits are shared equitably. Moreover, structural convergence and the strengthening of the euro area are necessary to make it more resilient to future shocks and to turn it into a true motor of shared prosperity,” he said.
The risks to the outlook were broadly balanced and were mostly external, such as “elevated geopolitical tensions (e.g. on the Korean peninsula), possibly tighter global financial conditions (e.g. due to an increase of risk aversion), the economic adjustment in China or the extension of protectionist policies.” Internal risks could relate to the outcome of the ongoing Brexit talks, a stronger appreciation of the euro and higher long-term interest rates, the EC said.
(Photo: Steve Ford/sxc.hu)