Bul­garia

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Bul­garia’s econ­omy is ex­pected to im­prove mod­estly in 2014. In­flows of FDI should pro­vide some sup­port as the re­cov­ery in Europe gath­ers mo­men­tum. A bet­ter agri­cul­tural per­for­mance and higher lev­els of pub­lic spend­ing are seen as other growth driv­ers. The job­less rate, how­ever, re­mains in dou­ble dig­its. Much of the un­em­ploy­ment has be­come struc­tural in na­ture and is there­fore harder to ad­dress. Of­fi­cials aim to cut the bud­get deficit to 1.8% in 2015. Based on per capita in­come, Bul­garia is the poor­est member of the EU with liv­ing stan­dards less than half its av­er­age. It will re­quire more than 20 years for the coun­try to achieve a per capita in­come that is two-thirds of the EU av­er­age. Growth has been fee­ble since the global re­ces­sion and out­put still re­mains be­low pre-cri­sis lev­els.

Bul­garia's econ­omy has con­tin­ued to strug­gle dur­ing the present decade. Real GDP grew by less than 1.0% in each of 2012 and 2013 – well be­low the econ­omy's po­ten­tial. Pro­duc­tiv­ity gains have been lim­ited, as a re­sult of which Bul­gar­ian firms have been los­ing ground at a time when EU mem­ber­ship has ex­posed them to greater com­pe­ti­tion. A drop-off in for­eign in­vest­ment has added to the coun­try's prob­lems.

Eco­nomic out­look

GDP is ex­pected to grow by a real 1.6% in 2014, up from 0.9% in 2013. In­flows of FDI should pro­vide some sup­port as the re­cov­ery in Europe gath­ers mo­men­tum. A mod­est im­prove­ment in agri­cul­tural per­for­mance and higher lev­els of pub­lic spend­ing are seen as other growth driv­ers. The econ­omy grew by 1.1% in the first quar­ter of 2014 on an an­nual ba­sis.

Av­er­age an­nual in­fla­tion was 0.9% in 2013

and is ex­pected to fall to 0.6% in 2014.

The real value of pri­vate fi­nal con­sump­tion fell by 5.0% in 2013 and an in­crease of 1.9% is fore­cast for 2014. Steady gains in real wages, along with a rise in dis­cre­tionary pen­sions, add to con­sumers' pur­chas­ing power. In ad­di­tion, over one mil­lion Bul­gar­i­ans work abroad and their re­mit­tances sup­port con­sumer spend­ing. In 2013, re­mit­tances to­talled $1.6 bil­lion.

Un­em­ploy­ment was 13% in 2013 and that is not likely to change in 2014. Em­ploy­ment rose in 2013 but more peo­ple have also re­turned to the work force, pre­vent­ing the job­less rate from fall­ing. Low-skilled work­ers rep­re­sent 70% of the un­em­ployed. The job­less rate is the high­est among young adults, eth­nic mi­nori­ties and ru­ral res­i­dents. Much of the un­em­ploy­ment has be­come struc­tural in na­ture and is there­fore harder to ad­dress.

The gov­ern­ment ex­pects for­eign in­vest­ment to rise to 1.7 bil­lion euro in 2014 and 1.8 bil­lion euro in 2015. Of­fi­cials also plan to in­crease the ab­sorp­tion of the EU struc­tural funds sig­nif­i­cantly.

Eval­u­a­tion of market po­ten­tial

Bul­garia's econ­omy de­pends heav­ily on ex­ports for its growth mo­men­tum, but im­prove­ments in do­mes­tic de­mand should help sup­port the econ­omy in the medium term. An­nual rates of growth are ex­pected to ex­ceed 3.0% per annum over the next sev­eral years. To re­alise these rates of growth the gov­ern­ment will still need to at­tract more in­vest­ment by cut­ting bu­reau­cracy and cor­rup­tion.

In the longer term, growth prospects could be lim­ited by sig­nif­i­cant pop­u­la­tion de­cline ow­ing to em­i­gra­tion and age­ing. Both these fac­tors will likely re­duce growth po­ten­tial.

Given present de­mo­graphic trends, the po­ten­tial for fur­ther em­ploy­ment growth is lim­ited. Mar­ginal gains in em­ploy­ment will be ac­com­pa­nied by a steady de­cline in the un­em­ploy­ment rate. Thus, the labour market sit­u­a­tion will be­come in­creas­ingly tight, with short­ages de­vel­op­ing in some in­dus­tries. This is ex­pected to lead to no­tice­ably higher wage gains in the fu­ture.

For­eign trade

Bul­gar­ian ex­porters de­pend heav­ily on other Euro­pean mar­kets. Ex­ports to other EU mar­kets amounted to 59.7% of the to­tal in 2013. Ba­sic man­u­fac­tures made up 22.4% of the to­tal. In dol­lar terms, Bul­gar­ian ex­ports grew by 10.7% in 2013 and a de­cline of 0.6% is ex­pected in 2014.

The com­pet­i­tive­ness of Bul­gar­ian ex­porters is jeop­ar­dised by a steady rise in en­ergy prices. The im­pact of higher prices is ac­cen­tu­ated by the fact that Bul­gar­ian man­u­fac­tur­ers are rel­a­tively in­ef­fi­cient users of en­ergy.

As a share of GDP, ex­ports amounted to 55.7% in 2013, up from 43.4% in 2008.

The cur­rent ac­count sur­plus was 3.1% of GDP in 2013. A sur­plus equiv­a­lent to 0.5% of GDP is ex­pected in 2014.

Busi­ness en­vi­ron­ment

The gov­ern­ment in­tends to sim­plify com­pany regis­tra­tion and li­cens­ing pro­ce­dures, ex­pand one-stop shops, and in­ten­sify ef­forts to com­bat cor­rup­tion. Its goal is to re­duce the ad­min­is­tra­tive bur­den on com­pa­nies by 20%. Plans to in­crease ef­fi­ciency in the en­ergy sec­tor and health ser­vices will sup­port growth and em­ploy­ment.

The in­for­mal sec­tor rep­re­sents at least a third of GDP. Al­though work­ers are rel­a­tively well ed­u­cated, skill short­ages are a con­stant prob­lem.

Gov­ern­ment spend­ing is rel­a­tively high, lead­ing to con­cerns that it may crowd out pri­vate in­vestors. Of­fi­cials plan to hold pub­lic ex­pen­di­tures to less than 40% of GDP in the fu­ture. Re­forms in health, pub­lic ad­min­is­tra­tion, and pen­sions are still needed to bol­ster the process of fis­cal con­sol­i­da­tion.

Bul­garia lacks an in­de­pen­dent ju­di­ciary sys­tem. In­creases in ex­cise taxes and re­forms to en­sure bet­ter com­pli­ance should pre­vent a fur­ther drop in tax rev­enues. Fur­ther re­forms are also needed to im­prove the busi­ness cli­mate.

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