June 11 (SeeNews) - Bulgaria's economy will contract by some 8.0% in 2020 and 0.3% in 2021 in case of a second outbreak of the coronavirus pandemic this year, the Organisation for Economic Co-operation and Development (OECD) said.
However, it the virus outbreak subsides by the summer, a more rapid recovery in private consumption and investment would lead to a lower gross domestic product (GDP) contraction of 7.1% in 2020, OECD said in the preliminary version of its June 2020 Economic Outlook report published on Wednesday.
Economic growth is expected to return in 2021 in Bulgaria only in OECD's 'single-hit scenario', the report reads. In this case, economic expansion of 2.4% is forecast.
Earlier this week, Bulgaria's government extended the state of epidemic emergency introduced over the coronavirus pandemic by two weeks, until the end of June, as the country again reported a surge in new cases with 83 found on Tuesday and 79 on Wednesday, following a brief period during which the number of active cases in the country declined on a daily basis. Prior to the state of epidemic emergency, the country was in a state of emergency for two months, until May 13.
According to OECD's 'double-hit scenario', unemployment would almost double after employment reached historic highs in 2019.
Unemployment in Bulgaria could rise further, particularly if the government’s wage subsidy scheme finishes in July without being replaced by new employment/active labour market polices with a similar impact, OECD noted.
Earlier this week, Bulgaria's labour minister Denitsa Sacheva said that the government plans to extend until end-September the deadline for filing applications under its wage support scheme introduced to cushion the impact of the coronavirus crisis and is ready to leave it in place by year's end.
In April, the European Commission approved Bulgaria's 1.5 billion ($833.6 million/766.9 million) levs job retention scheme for preserving employment in the sectors most affected by containment measures imposed over the coronavirus outbreak.
"While the two-month confinement has been lifted, a rapid recovery is unlikely given continued distancing measures, the vulnerable position of households, and pervasive uncertainty as well as weak external demand, especially from Europe," OECD noted.
According to OECD, more resources for the crisis response, further funding for the health sector, widened access to unemployment and means-tested benefits as well as increased liquidity support to firms are among the main factors that would help Bulgaria achieve a more robust recovery.
"Achieving membership of the European Exchange Rate Mechanism (ERM II) and banking union in 2020 would bolster confidence. Further EU resources would help the country expand its crisis response, particularly if financing conditions become further constrained," the organization said.
On Wednesday, the European Central Bank (ECB) said that Bulgaria currently does not meet all of the requirements for eurozone membership as the Law on the Bulgarian National Bank (BNB) and the Law on counter-corruption do not comply in full with the requirements for central bank independence, the monetary financing prohibition, and legal integration into the Eurosystem.
Bulgaria's macroeconomic policy response to the pandemic has been less powerful than in many EU countries due to a weaker fiscal policy response and restrictions on monetary policy, given the existing currency board, OECD explained in its report.
"Despite low levels of public debt and a strengthened banking system that has benefited from a reduction in non-performing loans, the response to a worsening crisis would be constrained if access to long-term financing deteriorates," OECD noted.
(1 euro = 1.95583 levs)