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Economic growth accelerates for a fifth quarter in row.
submited on 31.03.2005 in category Monetary policy | Macroeconomic developments | Political stability | Fiscal affairs
submited on 31.03.2005 in category Monetary policy | Macroeconomic developments | Political stability | Fiscal affairs
Economic growth accelerated in the last quarter of 2004. The real GDP growth reached 5.6% having been no more than 3.9% a year and a half before. In nominal terms, the economy now produces ?19.4 billion per year, which is exceeds the 1998 level by about 2/3. The last two quarters of 2004 registered record high levels of GDP growth, for which we find two major reasons.
First, the credit expansion in the country has been favorable not only to imports of consumer goods (for which it is mainly being blamed), but also for the investment activity acceleration. The capital formation increased by 12% last year – significantly faster than two years before (8.5%), just before the “credit boom”.
Second, the last year was particularly favorable for the producers of raw materials for the heavy industries. On the world markets, most of the industrial materials registered a significant rise in prices, the most important for the local economy being the metal prices. Prices have risen not only in US dollars but also in Euro (which is indicative for the ECB inflationary policy), which has given a short-term chance for heavy producers in Bulgaria.
In a political environment lacking prospects of significant reforms, our focus stays on the international developments as well as on the local central bank’s movements. Hard times lie ahead for most of the heavy industries during a period of more and more expensive credit in the US and upcoming tightening of the ECB monetary policy. The demand for basic materials is likely to drop no matter how the big economies in Asia develop. Metal and other raw material prices will go down and this will affect some of the Bulgarian big companies, which would most likely have to restructure their business.
First, the credit expansion in the country has been favorable not only to imports of consumer goods (for which it is mainly being blamed), but also for the investment activity acceleration. The capital formation increased by 12% last year – significantly faster than two years before (8.5%), just before the “credit boom”.
Second, the last year was particularly favorable for the producers of raw materials for the heavy industries. On the world markets, most of the industrial materials registered a significant rise in prices, the most important for the local economy being the metal prices. Prices have risen not only in US dollars but also in Euro (which is indicative for the ECB inflationary policy), which has given a short-term chance for heavy producers in Bulgaria.
In a political environment lacking prospects of significant reforms, our focus stays on the international developments as well as on the local central bank’s movements. Hard times lie ahead for most of the heavy industries during a period of more and more expensive credit in the US and upcoming tightening of the ECB monetary policy. The demand for basic materials is likely to drop no matter how the big economies in Asia develop. Metal and other raw material prices will go down and this will affect some of the Bulgarian big companies, which would most likely have to restructure their business.
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