EC lowers Bulgaria’s GDP growth forecast for 2014 and 2015

The European Commission (EC) lowered its forecast for Bulgaria’s 2014 and 2015 GDP growth to 1.2% and 0.6%, respectively from 1.7% and 2% in the spring forecast. 2016 GDP growth is seen at 1.0%. The main reasons for the muted growth are the weakening domestic demand influenced by the tightening credit standards after the June bank run and the frail labour market and the subdued investment outlook. EC expects the exports to resume growing at a moderate pace in 2015-16, sustained by the mild recovery in both the EU and non-EU trade partners and the current-account surplus is seen stable at about 2% of GDP by 2016. After a deflationary period in 2014, aggregate HICP is forecast to pick up only modestly in 2015 to 0.4% and 1% in 2016. EC projects the general government deficit to deteriorate from 1.2% in 2013 to 3.6% of GDP in 2014 basing the projection on the 2014 budget update proposal of the care-taker government made in September, which reveals a significant expenditure increase and on the VAT, excises and some non-tax revenues underperformance in 2014. Under a no-policy change assumption, the general government deficit is set to weaken further to 3.7% of GDP in 2015 and to 3.8% in 2016, in line with the projected sluggish evolution in tax bases. “The general government gross debt is forecast to increase rapidly from 18.3% of GDP in 2013 to about 25% in 2014, reflecting not only the financing of the current year’s fiscal deficit, but also the roll-over of a large bond maturing in January 2015 and the existing liquidity scheme for the stabilisation of the financial sector. The forecast does not include any potential further debt issuances to support the financial sector.”