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BNB should avoid further measures "against the trade deficit".
submited on 18.02.2006 in category Monetary policy | Macroeconomic developments
submited on 18.02.2006 in category Monetary policy | Macroeconomic developments
According the latest data from BNB the trade deficit in 2005 reached the record levels of EUR 5.2 billion or about a quarter of GDP. The current account deficit also climbed to a record of 15% of GDP.
The central bank has two options to look at these figures. First, their intervention in the banking business has given no result as far as the formal justification is concerned, i.e. taming the trade deficit. Moreover, the major effect of these policies was additional cost on banks to do their business without any concrete and know benefits to the economy. It seems rather logical that BNB avoids further measures of the sort.
The second possible perspective is that more restrictions on banks are needed. This is to a certain extent supported by independent economists, e.g. the latest report by the Center for Economic Development, a research NGO based in Sofia, focuses on the trade deficit as a major risk for the economy.
The following number may be useful for those looking for a link between consumer lending and trade deficit.
Growth of imports in 2005 of:
Non-durable consumer goods EUR 138 mln (16%)
Durable consumer goods EUR 170 mln (22%)
Investment goods EUR 962 mln (31%)
Crude oil and natural gas EUR 801 mln (54%)
The current account deficit grew by some EUR 1.5 billion in 2005. Growth of consumer durables imports was just EUR 170 mln or 0.8% GDP. Meanwhile investment goods imports grew by almost EUR 1 billion. We do not deny the close link between credit expansion and imports growth. However it is just not the case that it poses any macroeconomic risks. This is an indication of the foreign capital inflow rather than a macroeconomic problem that "needs to be tackled".
The central bank has two options to look at these figures. First, their intervention in the banking business has given no result as far as the formal justification is concerned, i.e. taming the trade deficit. Moreover, the major effect of these policies was additional cost on banks to do their business without any concrete and know benefits to the economy. It seems rather logical that BNB avoids further measures of the sort.
The second possible perspective is that more restrictions on banks are needed. This is to a certain extent supported by independent economists, e.g. the latest report by the Center for Economic Development, a research NGO based in Sofia, focuses on the trade deficit as a major risk for the economy.
The following number may be useful for those looking for a link between consumer lending and trade deficit.
Growth of imports in 2005 of:
Non-durable consumer goods EUR 138 mln (16%)
Durable consumer goods EUR 170 mln (22%)
Investment goods EUR 962 mln (31%)
Crude oil and natural gas EUR 801 mln (54%)
The current account deficit grew by some EUR 1.5 billion in 2005. Growth of consumer durables imports was just EUR 170 mln or 0.8% GDP. Meanwhile investment goods imports grew by almost EUR 1 billion. We do not deny the close link between credit expansion and imports growth. However it is just not the case that it poses any macroeconomic risks. This is an indication of the foreign capital inflow rather than a macroeconomic problem that "needs to be tackled".
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