EBRD sees Bulgaria’s economy contracting 5% in 2020

Bulgaria’s economic output is expected to decline by five per cent in 2020, mainly because of a sharp decrease in economic activity in March and during the second quarter due to the domestic containment measures pursued by the authorities to fight the coronavirus pandemic, the European Bank for Reconstruction and Development (EBRD) said in a May 2020 update of its regional economic prospects report.

Under the baseline scenario, recovery is expected in 2021, with GDP growth of four per cent, the EBRD said.

In 2019, Bulgaria recorded a solid growth of 3.4 per cent, driven mainly by private consumption, fuelled by increased earnings and a higher employment rate amid the tightening labour market, with an unemployment rate of around four per cent, the update said.

The report noted that Bulgaria declared a state of emergency on March 13, imposing tough restrictions on travel and economic activity including closing schools, restaurants, bars and non-essential shops.

“A significant drop in consumption of services and durable goods is expected, affecting SMEs in particular.”

Demand-side effects are likely to be large, given that retail trade and other directly affected services account for almost 25 per cent of GDP.

Other key transmission channels include a slowdown in exports of goods, given the lower demand globally, and postponed investments amid increased uncertainty and bearish market sentiment, the EBRD said.

In addition, Bulgaria’s tourism sector will be strongly hit (tourist spending accounts for about 10 per cent of GDP), the report said.

The mitigating factor will come from the increased government spending in the form of a fiscal crisis response package of about three per cent of GDP announced so far.

The EBRD said that Bulgaria’s budget, redrafted in light of the new circumstances, envisions a deficit of 2.9 per cent of GDP, compared to a previously planned balanced budget.

After four consecutive years of budget surpluses, and with public debt at 21 per cent of GDP, Bulgaria is among the least indebted countries in the EU, the report said.

Also, the Bulgarian National Bank has reacted promptly providing liquidity to the banking sector.

The country’s entry to the ERM2 is now scheduled for July 2020, although a further delay could not be ruled out.

Under the baseline scenario, a recovery is expected in 2021, with GDP growth of four per cent, the EBRD said.

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