- Political stability
- Fiscal affairs
- Monetary policy
- Regulated markets
- Privatisation
- Macroeconomic developments
submited on 03.07.2012 in category Regulated markets | Fiscal affairs | Privatisation | Political stability | Monetary policy | Macroeconomic developments
Here are the highlights of the annual report of Industry Watch on the state of the Bulgarian economy and the prospects before the main industries.
In 2011, for the first time since the beginning of the crisis we can see a more significant shrinkage of the budget deficits in Europe, which fell by 2 percentage points – to 4.5% of GDP in the EU. The data shows that the austerity measures are not the cause of the frail growth in Europe – on the contrary – all “problematic” countries – Spain, Portugal, Italy, Greece, Ireland – have higher expenses compared to the period before the crisis.
The contraction of the industry in Europe during 2012 is obvious, as the crediting of the private sector in the Eurozone has increased insignificantly by half percent annually and the investments are still stagnating. Against this background, the likelihood of a new recession or a “second bottom” of the crisis in the Eurozone, our main trading partner, seems ever more realistic.
Even in case the planned structural reforms in the European countries at risk are made, the economies will stagnate over the next 12-18 months, which will limit the demand for highly dependent on the business cycle goods and services on the European market and will respectively decrease the growth potential of the Bulgarian export sectors. Therefore, part of the Bulgarian exporters are looking for new niches and markets by redirecting towards the developing Asia, which will continue to grow with over 7% in real terms during 2012-2013 as well. The share of the export to China in the total exports of Bulgaria expanded most spectacularly - sixfold compared to the beginning of 2005 (Please, see the chart).
In Bulgaria the crisis was expressed mainly in a sharp contraction of investments, which also failed to recover after the initial shock. According to the latest available data, however, the direct foreign investments in the country have increased to 1.6 billion euro yearly in the beginning of 2012, while they had reached a bottom of below 800 million euro in the middle of 2011. The bank credit to the business sector will gradually start to recover- too. The current state of the Bulgarian banking system (high liquidity and significant reserves) allows for the rapid expansion of the business credit where there is enough presence of equity amongst entrepreneurs.
The stable public sector will continue to be necessary for the growth of the Bulgarian economy. Compared to the first four months of 2011 the deficit has declined significantly – by 355 million BGN or 61%. Unlike previous years, the low growth of government spending is not due to delayed or deferred capital expenditures, but to a significant retention of current expenditures. Under the conditions of a low inflation by the end of 2012, however, the growth of budget revenues will be minimal, which will require a deepening of the structural reforms, an increase of the control over the expenses and an increase of the public sector efficiency.
For a fourth consecutive year Industry Watch issues a special macroeconomic review in the middle of the calendar year. This is an addition to our main regular reports on the financial wealth in Bulgaria and the labor market, which gives a forecast for the macroeconomic development in the next 18 months.
The report analyses both the factors for growth on a macroeconomic level and the internal dynamics of the different sectors of the economy, divided into groups according to their dependence on the business cycle, the local investments and the lending activity of the banks.