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Despite some catastrophic forecasts the Bulgarian economy is still growing
submited on 21.09.2007 in category Political stability | Fiscal affairs | Monetary policy | Regulated markets | Privatisation | Macroeconomic developments
submited on 21.09.2007 in category Political stability | Fiscal affairs | Monetary policy | Regulated markets | Privatisation | Macroeconomic developments
The moment of GDP data release for the half-year coincided with ? big conference, dedicated to the currency board and the future entry of Bulgaria in the Euro area. From historic perspective the introduction of the currency board in Bulgaria set the foundation for the longest period of continuous economic prosperity. Some results ought to be reminded:
- GDP is now 2.3 times higher than it was back in 1998
- The real growth of the economy has exceeded 5% for 14 quarters now
- Investments in 2006 are 4.5 times larger than in 1998.
- The public debt declined from over 120% of GDP in 1996 to 20.5% in the mid 2007.
- The government realizes high budget surpluses, combined with a policy of reducing direct taxes.
The list can be extended further. In the same time some analysts – few Bulgarian but mostly international – made in the last year pessimistic growth forecasts. The formal explanations are “overheating”, “external imbalances”, “inflationary pressure”, etc. Some of them can turn into an indirect request for changing the regime of the currency board and leva devalvation. Such arguments were denied with solid logic by most experts, who participated in the conference during the week. The most frequently discussed threats for the economy however deserve a quick overview and explanation.
The most obvious reason to reject the dark scenarios is that big international analytical companies often make mistakes. For example, they were modestly optimistic for Bulgaria in 1995-1996 ?, when the structure of the economy and macro policies guaranteed a deep crisis – while now, when growth is accelerating, with public finance stability being maintained, they turn into pessimists.
”Overheating” is the easiest to use, but the heaviest potential risk for the economy to define. It is usually presumed when something is growing “too” fast – but what is the limit for every economy still remains open for discussion. The danger is determined by the existence of imprudent investments in the long term, made in a moment of enthusiasm or because of stimulating monetary policy. While the latter was fact in the USA and the Euro area in the last 6 years, with interest for the period in the range of 8-18% the situation in Bulgaria is hardly the same. And with a totally decapitalized economy, almost without developed private sector as of 1996-1997, 10-25% annual growth of investments does not seem odd.
The current account deficit is seemingly a universal herald of risk as accepted by many. But it is being forgotten that it is possible namely because of the substantial growth of foreign capital inflow, allocated into investments in Bulgaria. Meanwhile, in parallel with foreign capital, internal investments are also growing – so that there is no indication that consumption is growing unsteadily at the expense of savings. Furthermore these are private investments rather than a result of government debt accumulation – what induced crisis in Argentina or Southeast Asia.
Another argument supporting the negative scenario is the projection that the potential for attracting investments in Eastern Europe is exhausted and they are already decreasing. Even if this is the case for the region, this does not mean that the downturn will occur in every economy. Capital is always allocated where conditions for doing business are best, and they are determined by the government’s prudent policy. There is no reason for now to expect that Bulgaria cannot become (or remain) such a place.
NSI released positive data for the economy again:
- 6.6% quarterly GDP growth (6.2% for Q1), and for the half-year - 6.4%
- Industry and services grow even faster – by 9.1% and 8.8%
- Investments for the half-year grow with 29.6%, while consumption growth decelerated to 5.2% for the quarter.
All this data shows continuation of the investment driven growth, as after the slight slowdown in the beginning of 2006 the pace accelerated again.
- GDP is now 2.3 times higher than it was back in 1998
- The real growth of the economy has exceeded 5% for 14 quarters now
- Investments in 2006 are 4.5 times larger than in 1998.
- The public debt declined from over 120% of GDP in 1996 to 20.5% in the mid 2007.
- The government realizes high budget surpluses, combined with a policy of reducing direct taxes.
The list can be extended further. In the same time some analysts – few Bulgarian but mostly international – made in the last year pessimistic growth forecasts. The formal explanations are “overheating”, “external imbalances”, “inflationary pressure”, etc. Some of them can turn into an indirect request for changing the regime of the currency board and leva devalvation. Such arguments were denied with solid logic by most experts, who participated in the conference during the week. The most frequently discussed threats for the economy however deserve a quick overview and explanation.
The most obvious reason to reject the dark scenarios is that big international analytical companies often make mistakes. For example, they were modestly optimistic for Bulgaria in 1995-1996 ?, when the structure of the economy and macro policies guaranteed a deep crisis – while now, when growth is accelerating, with public finance stability being maintained, they turn into pessimists.
”Overheating” is the easiest to use, but the heaviest potential risk for the economy to define. It is usually presumed when something is growing “too” fast – but what is the limit for every economy still remains open for discussion. The danger is determined by the existence of imprudent investments in the long term, made in a moment of enthusiasm or because of stimulating monetary policy. While the latter was fact in the USA and the Euro area in the last 6 years, with interest for the period in the range of 8-18% the situation in Bulgaria is hardly the same. And with a totally decapitalized economy, almost without developed private sector as of 1996-1997, 10-25% annual growth of investments does not seem odd.
The current account deficit is seemingly a universal herald of risk as accepted by many. But it is being forgotten that it is possible namely because of the substantial growth of foreign capital inflow, allocated into investments in Bulgaria. Meanwhile, in parallel with foreign capital, internal investments are also growing – so that there is no indication that consumption is growing unsteadily at the expense of savings. Furthermore these are private investments rather than a result of government debt accumulation – what induced crisis in Argentina or Southeast Asia.
Another argument supporting the negative scenario is the projection that the potential for attracting investments in Eastern Europe is exhausted and they are already decreasing. Even if this is the case for the region, this does not mean that the downturn will occur in every economy. Capital is always allocated where conditions for doing business are best, and they are determined by the government’s prudent policy. There is no reason for now to expect that Bulgaria cannot become (or remain) such a place.
NSI released positive data for the economy again:
- 6.6% quarterly GDP growth (6.2% for Q1), and for the half-year - 6.4%
- Industry and services grow even faster – by 9.1% and 8.8%
- Investments for the half-year grow with 29.6%, while consumption growth decelerated to 5.2% for the quarter.
All this data shows continuation of the investment driven growth, as after the slight slowdown in the beginning of 2006 the pace accelerated again.
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