ANALYST VIEW - Bulgaria's H1 GDP Grows 7.1% Y/Y

The Bulgarian economy grew by 7.1% in the second quarter, compared to 7.0% in the first quarter and to 7.3% in the second quarter of 2007. Analysts polled by SeeNews last week predicted that it would grow 6.4%-6.5% in the quarter through June.

In 2007, the country's GDP grew by 6.2% in real terms, a tad slower than the 6.3% rise in 2006.

Following are analyst comments:

AGATA URBANSKA, EMERGING EUROPE ECONOMIST AT ING BANK, LONDON:

“The GDP surprised on the upside but the composition of the growth is not such that it is going to be sustainable – on the one side, the positive side, is a slight moderation in private consumption and still private investments are relatively high and there is a huge contribution from inventories so this is not likely to be sustainable given the slowdown in the whole Eurozone and the U.S. I don’t think investments will remain that strong and that strong built-up of inventories suggests that we are heading for a slowdown.”

“And then a very negative contribution from net exports is quite worrying so all in all while data today surprised on the upside, we still stick to expectations of much slower growth in the second half of the year with growth rates declining to 5.0%.”

PETER BILEK, RESEARCH FELLOW FOR SOUTH-EAST EUROPE WITH HUNGARY-BASED INTERNATIONAL CENTRE FOR ECNOMIC GROWTH (ICEG) EUROPEAN CENTRE:

“The GDP data for the second quarter of the year was close to the growth in the first quarter so GDP growth remains impressive, that’s why we had to revise our GDP forecast for Bulgaria for 2008 upwards and we expect that GDP growth will go up to 7.0% this year [from previously forecast 6.0%].”

“The main engines of the economy refer to domestic demand factors – in the first quarter we observed that a slight shift was observable in the GDP growth factors because exports seemed to gain momentum in the first quarter but in the second quarter we see that Bulgaria returned to its domestic demand-based growth so we expect that this will continue in the rest of the year.”

“On the demand side we can see that investments and private consumption were the main engines of the economy, while on the production side, after last year’s unfavourable weather conditions, agriculture returns to its [good], and even better, performance.”

TOTH GYULA, EASTERN EUROPE ECONOMIST AT CAIB/BANK AUSTRIA:

“The bottom line is a little bit similar to what we’ve observed in Romania and at the moment it is only Bulgaria and Romania [in southeast Europe] who manage to have higher growth rates in the second quarter than in the first quarter and this underlies the fact that the domestic demand is still growing really fast in these two countries and the implication from this is that inflationary pressure is not declining from the underlying point of view.”

“From the headline point of view, food prices and oil prices are falling and that’s good news for Bulgarian CPI as well but the GDP figure is telling that domestic demand is still going really very fast meaning that more action is needed – in case of Bulgaria this can be only fiscal policy, namely fiscal policy needs to be tightened further.”

“Put it differently, there is no scope for fiscal policy loosening despite increasing risk to growth globally.”

Gyula said he expected Bulgaria's economy to slow down a little bit in the second quarter but this did not happen because of the "relatively strong" domestic demand.

Regarding full-year GDP growth he said: “We didn’t update it yet but it might be obviously a little bit stronger that we previously thought – 5.5% - 5.7% - it might be close to the 6.0% which will be a little slowdown from the previous year […] we expect a relative slowdown in the second half but because the first quarter was a little bit better than expected, this slowdown will be slower on an annual basis.”

“The slowdown is based on a lot of factors. Number one is investment growth is going to slow down because tighter credit conditions make funding of investment more expensive. Number two is that the Eurozone economy is already slowing down […], and number three is because of this more expensive funding household lending should slow down a little bit and that means a little bit slower domestic demand in Bulgaria."