- Political stability
- Fiscal affairs
- Monetary policy
- Regulated markets
- Privatisation
- Macroeconomic developments
submited on 29.05.2012 in category Regulated markets | Fiscal affairs | Privatisation | Political stability | Monetary policy | Macroeconomic developments
2012 has been so far under the sign of the deepening European debt crisis. In this context, the economic growth in Bulgaria is minimal, but still the Bulgarian economy is formally not in a recession. One of the leading indicators for the economy is the inflow of foreign investments in the country.
On one hand, the foreign direct investments in the country continue to be at very low levels in comparison with the pre-crisis period – about 5 times fewer. On the other hand, however, there is a third consecutive quarter of growth of FDI, which reached €1.6bn for the last 12 months until March 2012 being €1.2bn a year ago.
Although the data is still preliminary and subject to several revisions, most probably the inflow of foreign direct investment will gradually accelerate from now on, albeit at different speeds in the different sectors of the economy.
In the last 12 months, fewest foreign investments were allocated into the sectors of agriculture and mining which traditionally rely primarily on domestic sources of financing and the absorption of European funds.
Bulgaria, however, has substantial potential for increasing the inflow of investments in hotels and restaurants, as tourism was less heavily affected by the global financial crisis in comparison with other sectors.
Investments in construction and real estate gradually recover, but will probably tend to gravitate around the current low levels in the next 2-3 years. While before the crisis the sectors of construction and financial intermediation attracted up to 2/3 of all foreign investments, while currently they attract on average about 1/5. The reasons for the slowing capital inflow through the banking system can be traced back to the more conservative policy of the parent banks, as well as the weaker demand for loanable funds coming from the Bulgarian firms and households.
Foreign investments in retail trade and repairs amounted to some €180m or 1/7 of all FDI in the last 12 months, but this sector also has upside potential, having in mind the still weak development of the trade sector in the country despite the advent of several new retail formats on the Bulgarian market.
During the last 2 years there was a significant increase of the importance of energy and transport, as the share of attracted foreign capital expanded notably. As of end-March 2012 most foreign capital was allocated to the processing industry, which expanded substantially in line with the coming of the European economy out of recession. The reported deceleration of industry in the beginning of 2012 resulting from the weaker demand of industrial goods in the Eurozone, under pressure by public overindebtedness, will probably keep foreign investments in the sector around the current levels.
Despite the negative impact of the European debt crisis and the potentially worsening problems of Greece, Bulgaria still can take advantage of the maintenance of fiscal and financial stability in combination with structural reforms. However, during the past year there was not a notable improvement of the business environment in Bulgaria, at least according to the competitiveness rankings by the World Bank, the World Economic Forum and other international organizations.