May 7 (SeeNews) - The European Commission said that it expects Bulgaria's gross domestic product (GDP) to shrink by 7.2% in 2020 due to the adverse impact of measures taken to contain the spread of the coronavirus pandemic, before growing by 6% in 2021.
"The sectors directly subject to these measures (e.g. retail, transport, hotels and restaurants, art and entertainment) are estimated to be operating at 30-40% of their capacity, while important negative spillover effects are also expected on the rest of the economy," the European Commission said in its Spring 2020 Economic Forecast, published on Wednesday.
Domestic demand - the main driver of Bulgaria's GDP growth in the past few years, is projected to strengthen in the third quarter of 2020 and continue growing in the fourth.
However, household consumption is expected to fall by almost 6% in 2020, while investment is set to shrink by 18% this year on account of current and expected financial hardship at the firm level due to drastically reduced cash flows.
The lower investment will contribute to the projected 12% drop in imports, while the impact of the COVID-19 pandemic on international trade is expected to lead to a 13% decrease in exports.
Bulgaria's unemployment rate has increased significantly since the COVID-19 containment measures were put in place, boosted in part by the return of workers from abroad. The unemployment rate is expected to jump to 7% in 2020 from the historic lows of 4.2% achieved in 2019, with job losses expected to be most pronounced in the services sector.
The country's unemployment rate is then seen declining to 5.75% in 2021 with nominal wage growth expected to amount to 3.5% in 2020 and 2.25% in 2021.
Bulgaria's consumer price inflation is expected to fall from 2.5% in 2019 to 1.1% in 2020 and stay at that level in 2021, largely due to the drop in oil prices.