Bulgarian NGO Experts Forecast Economy Slowdown

Business | November 1, 2011, Tuesday // 15:43
Bulgarian NGO Experts Forecast Economy Slowdown: Bulgarian NGO Experts Forecast Economy Slowdown According to preliminary data, direct foreign investments in Bulgaria for the January-August period of 2011 are estimated at EUR 225.6 M (0.6% of GDP) or just one fourth of those from the same period of 2010. File photo

The growth of Bulgarian economy will further slow down by the end of 2011, according to the Sofia-based NGO, Center for Economic Development (CED).

The forecast is based on economic slowdown of the country's main partners, according to the NGO's quarterly report "Economy of Bulgaria," presented Tuesday.

The growth in the third quarter is between 1% and 1.5% while for the year it will end up below 2% from the Gross Domestic Product (GDP).

According to CED, there is a noted trend for a balanced growth structure. Regarding GDP, the contribution of the industrial sector us going down, but services will be on the rise. Regarding its use, the contribution of the net export will shrink, while internal demand will go up.

The forecast of the NGO is close in numbers to the one of the National Statistics Institute (NSI) for growth on annual basis on seasonally unadjusted data - for GDP respectively 1.5% and 2.2%. The seasonally adjusted growth of GDP for the second quarter on annual basis is equal to the one of added value (2.2%) since the "correctives" position is going up with about the same pace (2.1%), according to the report.

The NGO sees investment dynamics in Bulgaria as alarming – on quarterly basis, in the last quarter of 2010, there was a strong increase (8.1%), and the growth continued in the first half of 2011, but with a slower pace.

CED experts say they saw, in the second quarter of 2011, difficult to interpret datagrowth on annual basis on seasonally adjusted data (8.4%) and decrease on the unadjusted one (-9.1%), pointing out that since the latter is more relevant for yearly dynamics, they expect 2011 to end once again as 2010 (16.5%) - with a reduction of foreign investments, but below the one from the previous year.

According to preliminary data, direct foreign investments in the country for the January-August period of 2011 are estimated at EUR 225.6 M (0.6% of GDP), or just one fourth of those from the same period of 2010 – EUR 926.% M (2.6% of GDP).

The most common explanation for this exodus stems from payment of internal company loans under deferred payment plans, which could be also interpreted as a sign of the good financial state of companies with foreign participation, the experts say.

They point out that reduction of direct foreign investments is a natural process, due to the current economic reality where investors' interest is redirected from sectors such as trade, finance, and construction to energy and industry, in the conditions of seriously lower demand and uncertain markets. According to the report's forecast, it is unlikely for Bulgaria to reach official expectations of EUR 1.5 B in direct foreign investments for 2011.

The report notes that the flow of foreign investments is further impeded by global financial problems, the slowdown in the recovery of global economy, the complex situation in Greece, Italy and Spain, the uncertain economic environment in Bulgaria, and the shrinking internal market.

The experts point out that low taxes and cheap labor are no longer considered advantages sufficient enough to attract investments in a situation of lack of clear priorities, malfunctioning justice system, uncertainty and unpredictability of the environment, heavy bureaucracy, and worsening education.

CED further explain that in the services sector business polls register worsening of the business climate, related to pessimistic expectations for demand in the next three months.

If the economy slowdown is to continue, there is a possibility to conclude the fourth quarter with an even lower growth than the third one, all while consumer polls from July reveal the latter have remaining reservations after the strong pessimism, registered in April, the economists say.

All this confirms CED expectations to not have a more rapid economic growth on annual basis by the end of 2011, and this is why they rather forecast the opposite trend.

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Tags: demand, NSI, direct foreign investments, data, adjusted, seasonally, preliminary, CED, Center for Economic Development, import, export, GDP, taxes, recovery, growth, slowdown, economy, forecast, experts, NGO, Bulgaria

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