EU autumn forecast cuts Bulgaria 2018 growth estimate to 3.5%

Written by on November 8, 2018 in Bulgaria - Comments Off on EU autumn forecast cuts Bulgaria 2018 growth estimate to 3.5%

The European Commission’s autumn forecast for the EU economy, released on November 8, remains optimistic about Bulgaria’s growth prospects this year, but cut its estimate to 3.5 per cent, from 3.8 per cent in the summer forecast.

Growth will be driven mainly by the “strong domestic demand dynamics” also seen in the first half of the year, supported by “positive developments in the labour market, increased real disposable income and positive consumer sentiment,” the forecast said.

In 2019 and 2020, real GDP growth is expected to increase slightly to 3.7 per cent (unchanged from the summer forecast) and 3.6 per cent, respectively, with domestic demand the main engine of growth, but investment also contributing as more projects co-financed by the EU get underway.

“Risks to the growth outlook are tilted to the downside. These mainly concern external demand, which could be hampered by political and economic risks in some major trading partners,” the EC said. “On the positive side, a tightening labour market could lead to higher-than-expected increases in wages and income, which in turn could have a stronger positive impact on private consumption.”

The Commission also expects inflation to slow down next year and in 2020, having risen this year mostly due to higher energy prices and a lower harvest, while its record low unemployment is predicted to decline further, to the point where labour shortages and the planned government wage increases are seen driving wage growth above productivity growth.

For the EU as a whole and the euro zone, the Commission forecast growth of 2.1 per cent, the same as in the summer forecast issued in July. However, the EU27 excluding Britain, which is set to leave the bloc in March 2019, is seen growing by 2.2 per cent.

Despite projections showing that all EU economies will record in the next two years, uncertainty and risks were on the rise and were already impacting the pace of growth, European Commissioner Valdis Dombrovskis, responsible for financial stability and the euro, cautioned.

“We need to stay vigilant and work harder to reinforce the resilience of our economies. At EU level, it means taking concrete decisions on further strengthening our Economic and Monetary Union. At national level, there is even a stronger case for building up fiscal buffers and reducing debt while making sure that the benefits of growth are also felt by the most vulnerable members of society,” he said in a statement.

The main risks came from potential overheating of the US economy, fuelled by last year’s tax cuts, and the prospect of further trade tensions between the US and China, which could in turn cause “disorderly adjustment in China, given the level of corporate debt and financial fragility,” the EC said.

Within the EU, “doubts about the quality and sustainability of public finances in highly indebted member states” – a transparent nod to Italy, currently embroiled in a stand-off with the European Commission over its draft 2019 budget – could spill over to the banking sector, raising financial stability concerns, the forecast said.

On the topic of risks associated with Brexit, the forecast did not go into extensive detail, but noted several times that “in case of a no deal scenario, the impact is expected to be much larger on the UK than on the EU27 overall.”

(Photo: Steve Ford/sxc.hu)

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