Bulgaria's C-bank Deputy Gov Sees Slower GDP Drop in '09, Growth in '10 - Bloomberg

Gross domestic product (GDP) may drop 4.2% this year and grow 0.5% next year, Kostov told Bloomberg in an interview in Dubrovnik, Croatia, on Tuesday.

The government expects a 6.3% decline in 2009 and 2.0% contraction next year. The International Monetary Fund has forecast that the country's GDP will fall 6.5% this year and 2.5% next year.

“Exports and production are stabilizing,” Kostov said, citing a recovery in Germany, Europe’s largest economy and Bulgaria’s biggest export market.

Bulgaria, the European Union’s poorest country, is going through its first recession in 12 years after a three-year lending boom stalled and foreign investment dried up. Exports, led by metals and chemicals, dropped an annual 30% in the first half. Germany and France emerged from recession in the second quarter, indicating demand may pick up shortly, Bloomberg said.

Bulgaria’s current account gap will probably shrink below 10% of GDP next year, from as much as 12% percent this year, as exports revive and the recession curbs domestic consumption, Kostov told the news agency.

The country is on track to enter its currency in the two-year waiting room for the adoption of the euro, Exchange Rate Mechanism II (ERM II), by early next year, Kostov said. He said the bank supported the government’s effort to enter the lev into the ERM.

Since July 1997 Bulgaria has been operating an IMF-prescribed currency board system, a tight monetary arrangement that ties the level of cash in circulation to the amount of central bank foreign exchange reserves. The fixed exchange rate of the Bulgarian lev under the system is 1.95583 per euro.