- Political stability
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- Macroeconomic developments
submited on 06.04.2012 in category Political stability | Monetary policy | Macroeconomic developments
In 2011, economic recovery in the European Union slowed down to 1.5% annual GDP growth in real terms from 2% in 2010. The leading indicators of economic activity as the number of industrial orders, expectations of business and consumers reveal that this underlying trend will be maintained in 2012. The European Commission and the International Monetary Fund forecast zero growth in EU-27 and a mild recession (real GDP decline of up to 1%) in the Eurozone.
Behind the aggregate statistics, however, lies a very different economic activity on a country and regional level. The differences are due both to structural peculiarities of the various national European economies – their openness and respectively their dependence on the external environment and the different anti-crisis policy of each country.
Based on the speed of economic recovery compared to the average GDP growth rate in EU-27, the European countries can be grouped into countries with high and slow growth, while based on the trend relative to 2010 we could differentiate between countries with acceleration and deceleration of growth. Accordingly, we could form 4 groups of countries (Please, refer to the chart).
In the most unfavorable position are the countries placed down and to the right – they report slow or negative growth with a trend toward deterioration. Among them are the directly affected by the European sovereign debt crisis states such as Portugal, Greece and Italy, and other countries with sluggish growth such as Slovenia, the United Kingdom, Denmark, the Netherlands, and Cyprus.
In another group (downward left) are countries, which have slow growth, but with a tendency toward improvement – Spain and Ireland, whose banking sectors and real estate markets were heavily affected by the world financial crisis, but reported growth of 0.7% annually in 2011.
The most dynamic economies are in Central and Eastern Europe (Bulgaria, Hungary, Romania, Poland, and the Baltic States), in which the business cycle is manifested with a certain time lag in comparison to the Eurozone. These countries together with Austria and France constitute the third group of economies – economies with a higher-than-average growth, which accelerated in 2011 (high and to the left on the chart).
In the fourth countries (in the upper right corner of the chart) are the economies, which have already passed the peak of economic activity in the current business cycle and report the first visible signs of deceleration – the Czech Republic, Belgium, Malta, Finland, Germany, Slovakia and Sweden.
What can we expect of 2012? As a whole the underlying trend is negative – growth is projected to slow down, whereas the EU-27 economy will be on the verge of recession. 17 out of 27 economies are expected to report positive growth, trending toward cooling economic activity. Only economic growth in Denmark is forecasted to pick up in 2012, albeit barely up to 1.1% year over year. The upside potential in countries with fiscal problems will be limited in 2012.
What does this mean for Bulgaria? Having in mind the strong dependence of the Bulgarian economy on the Eurozone, which absorbs ½ of the Bulgarian exports and provides ½ of the foreign direct investment in Bulgaria, the official forecasts are for a slowdown of the economic growth down to 1.3% annually in Bulgaria look realistic. As the International monetary fund noted, however, it is possible to have faster than initially expected growth in Bulgaria, shown also in the regular quarterly Industry Watch report “Personal Assets in Bulgaria: Financial Wealth and the Housing Market”.