- Political stability
- Fiscal affairs
- Monetary policy
- Regulated markets
- Privatisation
- Macroeconomic developments
Economic growth during global recession
submited on 19.12.2008 in category Political stability | Fiscal affairs | Monetary policy | Regulated markets | Privatisation | Macroeconomic developments
submited on 19.12.2008 in category Political stability | Fiscal affairs | Monetary policy | Regulated markets | Privatisation | Macroeconomic developments
The official statistics in Bulgaria reported the preliminary data on GDP in Q3 2008. The real growth of the economy remained relatively high, although slightly decelerating compared to the previous (second) quarter.
Considerable contribution to the relatively high growth is brought in by agriculture, which is typically characterized by strong fluctuation in recent years, reporting record-high growth after substantial declines. With regard to the negative impact of the contracted consumer and investment demand on the real sector the slowing growth of the local industry is rather expected.
From the perspective of end use the main driver of economic growth turns out to be investments, rather than consumption, as the popular opinion is. Investments continue to grow at above 22% in real terms, forming more than 30% of the volume of the economy. Even from purely mathematical standpoint, without taking account of the long-term effects of increased investment activity on the potential of the economy, investments have larger contribution to economic growth in Q3 2008.
It is true that official GDP data are representative of economic activity in the months July, August, September – a period, in which the impact of the global crisis on the Bulgarian economy (at least seemingly) was not that tangible. We must not forget though that in Q3 decelerated substantially, the inflow of foreign direct investment slowed down, and the EU, which is our main foreign trade partner, was in fact already in a recession.
In other words, the Bulgaria economy reported growth despite the unfavorable international environment.
Other source of frustration among the economic community on a global scale (apart from recession) is the probability of prolonged deflation. The dominating worries are that the deflation will increase the real value of the debt, accumulated by the business and households, and thus impede the debt payments. In the same time however deflationary expectations create stimuli for postponing consumption in time. In Bulgaria there is also a deflationary process (at least on a monthly basis), although slower than in the mature economies. Deflation here will probably affect not only consumer prices, but also the prices of real and financial assets. In fact the marker assessment of the equity value of Bulgarian public companies already declined by almost 80% annually, as measured via the main stock exchange index SOFIX. The housing price dynamics also began to decelerate.
Nominal interest rates on bank deposits have recently grown at accelerated rates, reflecting the contraction of credit markets on a global scale. The rise in nominal interest rates on deposits combined with deflation (or at least deceleration of inflationary dynamics) leads to increasing real returns on bank holdings. Thus the stimuli for saving are increasing (at least in the short term) under the assumption of the banking system stability.
Potential increase in the propensity to save could partially compensate for the weakening inflow of foreign capital into the country (according to preliminary data) and support the still high investment activity. After all namely investments in productive activities not only improve the short-term state of the economy, but also the long-term outlook.
Considerable contribution to the relatively high growth is brought in by agriculture, which is typically characterized by strong fluctuation in recent years, reporting record-high growth after substantial declines. With regard to the negative impact of the contracted consumer and investment demand on the real sector the slowing growth of the local industry is rather expected.
From the perspective of end use the main driver of economic growth turns out to be investments, rather than consumption, as the popular opinion is. Investments continue to grow at above 22% in real terms, forming more than 30% of the volume of the economy. Even from purely mathematical standpoint, without taking account of the long-term effects of increased investment activity on the potential of the economy, investments have larger contribution to economic growth in Q3 2008.
It is true that official GDP data are representative of economic activity in the months July, August, September – a period, in which the impact of the global crisis on the Bulgarian economy (at least seemingly) was not that tangible. We must not forget though that in Q3 decelerated substantially, the inflow of foreign direct investment slowed down, and the EU, which is our main foreign trade partner, was in fact already in a recession.
In other words, the Bulgaria economy reported growth despite the unfavorable international environment.
Other source of frustration among the economic community on a global scale (apart from recession) is the probability of prolonged deflation. The dominating worries are that the deflation will increase the real value of the debt, accumulated by the business and households, and thus impede the debt payments. In the same time however deflationary expectations create stimuli for postponing consumption in time. In Bulgaria there is also a deflationary process (at least on a monthly basis), although slower than in the mature economies. Deflation here will probably affect not only consumer prices, but also the prices of real and financial assets. In fact the marker assessment of the equity value of Bulgarian public companies already declined by almost 80% annually, as measured via the main stock exchange index SOFIX. The housing price dynamics also began to decelerate.
Nominal interest rates on bank deposits have recently grown at accelerated rates, reflecting the contraction of credit markets on a global scale. The rise in nominal interest rates on deposits combined with deflation (or at least deceleration of inflationary dynamics) leads to increasing real returns on bank holdings. Thus the stimuli for saving are increasing (at least in the short term) under the assumption of the banking system stability.
Potential increase in the propensity to save could partially compensate for the weakening inflow of foreign capital into the country (according to preliminary data) and support the still high investment activity. After all namely investments in productive activities not only improve the short-term state of the economy, but also the long-term outlook.
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