ECONOMIC OUTLOOK – EIU Sees Bulgaria's Economic Growth at 1.0% Next Year, 3.4% in 2011

The country's real gross domestic product (GDP) is expected to decline by 5.3% this year.

“A weak recovery in GDP growth is forecast for 2010, at just 1%, as domestic demand will remain subdued owing to high unemployment, slow wage growth and limited borrowing opportunities," EIU said in an economic forecast for Bulgaria released to coincide with Eighth Business Roundtable with the Government of Bulgaria held in Sofia.

Government consumption is also expected to contract in 2010 as the cabinet needs to tighten its fiscal policy.

In 2011, the GDP will grow more significantly, by 3.4%, as demand will start to bounce back helped by better borrowing conditions and more positive outlook in the Euro zone, the report said.

“The downside risks to this forecast include that bottlenecks in foreign financing could still worsen and force a sharper than expected reduction in external economic imbalances, that there could be a steeper collapse in the property market, and that the rise in NPLs [non-performing loans] could be above expectations.”

The Bulgarian parliament adopted last week a budget bill for next year that assumes a 2.0% drop in the GDP and a budget deficit equivalent to 0.7% of the projected GDP.

Consolidated budget revenue is set at 26.4 billion levs, or 41.6% of the projected GDP, while spending is set at 26.9 billion levs, or 42.3% of GDP. The projected revenue in 2010 is 19% lower than the 2009 target, while spending is set at 11% below the 2009 plan.

“Given the poor outlook for budget revenue, we continue to estimate a small budget deficit in 2009," EIU said. It added it expected the governing centre-right GERB party that came to power in July will make it a priority to bring the budget back into balance in 2010-2011 and forecast small surpluses in these years.

EIU sees the average inflation in Bulgaria at 2.7% this year, higher than the 2.3% figure projected by the Finance Ministry.

“We forecast that inflation will remain low in 2010, at an average of 2%, before picking up slightly, to 2.5%, in 2011 as private consumption and investment spending recover more strongly from the economic crisis,” EIU’s report said.

EIU FORECAST SUMMARY (in percent unless otherwise indicated):

*Economist Intelligence Unit estimates

**Economist Intelligence Unit forecasts

***Actual