ANALYST FORECAST – Bulgaria’s Q2 GDP To Grow by Real 6.4-6.5% Y/Y

The country's statstics office NSI will release on Monday the gross domestic product (GDP) data for the second quarter of 2008. 

“We expect growth in between 6.4% and 6.5% in the 2Q 2008,” Kristofor Pavlov, chief economist and head of economic research unit with UniCredit Bulbank, told SeeNews in a statement.

Lachezar Bogdanov, an analyst with Sofia-based independent think-tank Industry Watch Group, said Bulgaria’s economy will grow by a real 6.5% on an annual basis in the second quarter. He expects the figure will be higher than the 6.3% growth forecast which NSI made last month, as preliminary data did not cover all economic agents.

Austrian banking group Raiffeisen also expects the actual figure to be higher than the NSI forecast.

“The yet-to-be released Q2 figure may turn out even bigger than 6.3%, as the first estimate of NSI for Q1 of 6.8% was 0.2 pp lower than the later official release,” Raiffeisen said in its latest monthly report.

Bulgaria’s GDP grew by a real 7.3% in the second quarter of 2007. It rose 7.0% year-on-year in the first quarter of 2008.

According to Bogdanov, the slower economic growth in this year's second quarter as compared to a year earlier is due to the high base from last year set mostly by the financial sector which expanded rapidly between 2005 and 2007.

“[...] actually the non-banking financial sector has been growing extremely fast in recent years […] most probably this won’t be a long-term process, i.e. this component of the growth related to the fast expansion of the financial services sector will most probably shrink,” Bogdanov said. He added that the effect of the sharp expansion of the financial sector has already been exhausted to some extent.

Both analysts polled by SeeNews expect no major reshuffle of the components of Bulgaria's economic growth in the second quarter.

“Growth will be driven by domestic demand with negative contribution of net exports decreasing marginally,” Pavlov said and added that the contribution of real estate, construction and financial intermediation sectors will be the strongest.

Industry and services will continue to grow, Bogdanov said. Probably the farm sector will perform a tad better than in the previous summer.

“I don’t think that there will be twists or surprises which will be shocking,” said Bogdanov.

FULL-YEAR VIEW

The two analysts polled by SeeNews differ in their forecasts for the country’s economic growth in all of 2008. While Bogdanov expectations are close to the upper end of the government’s 6.2-6.5% forecast for the 2008 GDP growth, the forecasts of Pavlov are at the lower end.

“I think that the forecast for the whole year could be safely put in the 6.4-6.5% range,” Bogdanov said. All key sectors like transport, communications, tourism and metallurgy will show stable annual growth, he added.

Pavlov was less optimistic in his forecast, saying that Bulgaria will be influenced by global financial woes because the country's economy heavily depends on imports of international savings to finance its domestic demand expansion and relies too much on just three sectors - construction, real estate and financial intermediation, for its growth.

“With the holiday homes market losing its allure for international investors and credit growth slowing in 2009 due to limited capacity of local banks to increase their external borrowing, GDP is anticipated to slow down,” Pavlov said. To make things worse, foreign capital inflows will decrease as global financial turmoil had increased the cost of foreign borrowing.

“On top of that, weaker growth in the EU will affect negatively demand for Bulgarian exports, as more than two-thirds of the country’s merchandise exports are channelled to the EU,” said Pavlov.

“Against this background we forecast economic growth to slow marginally in 2H2008, resulting in 6.2% real growth for the whole year, and further to 4.2% in 2009,” he added.

The government in Sofia last month raised its projection for the country’s economic growth in 2008 to a real 6.2-6.5% from its earlier forecast of 6.2%.