Bulgaria

Current Economic Outlook

After posting robust growth rates averaging 6% from 2005-2008, Bulgaria’s economy entered sharp recession in 2009 and will experience one of the slowest recoveries in the region. The country’s GDP contracted 4.2% y/y in H1 on weak external demand and waning capital inflows. In a sharp contrast to other regional economies, Bulgaria’s economic contraction accelerated to 5.4% y/y in Q3 2009. The fall was driven mostly by a whopping 36.5% y/y dive in investment. The October data showed no clear signs of recovery, with the contraction of industrial output still in the double-digits.

Because Bulgaria runs a currency board, the economy will find it tougher to recover through exports, especially given the currency depreciation in many regional export competitors. To maintain confidence in the currency board, the government is implementing tight fiscal policy. The country’s 2009 budget deficit is estimated to be 0.8% of GDP, the lowest among EU-27 countries, and the authorities are aiming for a balanced budget in 2010. Similar to elsewhere in the region, private demand in Bulgaria will remain subdued due to rising unemployment and curbed lending conditions.

Read the Q1 2010 Bulgaria Outlook.