Bulgaria's Economic Recovery to Accelerate in 2013 - Report
Bulgaria's economy should begin showing more signs of recovery in 2013, according to UniCredit Bulbank's latest Quarterly Macroeconomic Update on Central and Eastern Europe.
Analysts of the bank suggest that Bulgaria should be able to win back foreign investors' confidence as financial market tensions are not expected to escalate much further.
According to the report, these factors, combined with a very solid absorption of EU funds, should be enough to push gross fixed capital formation (GFCF) up by around 5% in 2013, adding roughly 1.1 pp to the GDP.
Though to a smaller scale, final consumption expenditures are also expected to improve.
The planned increase in the minimum wage and in pension rates after they had been kept frozen for the past three years should alone boost average households' income by a nominal 3%, while weaker food prices pressure should boost purchasing power, according to the report f UniCredit.
"Against the background of all these factors, we decided to keep our GDP growth forecast unchanged at 0.5% in 2012 and 1.5% in 2013," says Kristofor Pavlov, Chief Economist for Bulgaria at UniCredit Bulbank, as cited by the bank's press office.
In Q2, 2012, GDP growth remained lackluster at 0.3% quarter on quarter, equivalent to 0.5% year on year for a second quarter in a row.
The growth was due to stronger individual consumption and exports.
Exports rose by 3.4% quarter on quarter and by 3.9% year on year, while private consumption went up by 2.4% quarter on quarter, according to the quarterly report.
In July 2012, the consumer price index (CPI) posted its strongest month on month increase (1.5%) in 4 years amid food and energy price spikes.
Meanwhile, core inflation, which excludes volatile energy and food components, rose a meager 0.1% month on month and 0.2% year on year, reflecting the significant slack in the economy which continues to operate below capacity, Unicredit Bulbank reports.
According to Kristofor Pavlov, higher inflation helps to alleviate the borrower's woes as it reduces the real value of debt.
The UniCredit Bulbank Chief Economist for Bulgaria explains that the higher inflation rate creates more incentives for consumption and could therefore be a component of the medicine needed to end cash hoarding, which is one of the factors that hold back domestic recovery.