EUROPEAN COMMISSION RELEASES WINTER MACROECONOMIC FORECAST
05.02.2016
The European Commission expects for Bulgaria's GDP growth to be 2.2% in 2015, driven mainly by exports and falling oil prices, before dropping to 1.5% in 2016. The reason for this is the weakened absorption of EU funds in connection to the technical timing required for launching projects under the new programming period. The GDP growth is set to recover to 2.0% in 2017 as domestic demand strengthens. Private consumption is expected to grow over the whole forecast period.
The Commission expects that net exports will continue supporting growth over the whole forecast horizon.
According to the Commission expectations, the labour market will continue improving gradually, with the level of unemployment reaching 8.8% at the end of the forecast horizon.
The Commission expects a slowdown in the negative inflation in 2016, however it looks set to turn positive at the end. Nevertheless, the annual HICP inflation will remain just below zero at -0.1%, turning positive in 2017.
The general government deficit is estimated to fall to 2.5% of GDP in 2015 compared to the original budget deficit target of 2.8% of GDP. This improvement is mainly due to higher tax revenues, mostly attributable to improved tax administration. The Commission forecasts that the headline deficit is to recede to 2.3% of GDP in 2016 and to 2.0% of GDP in 2017, reflecting measures on the revenue side. The public-debt-to-GDP ratio will increase from 27% in 2014 to 30.7% of GDP in 2017.
Comments of the Ministry of Finance
Compared to its autumn forecast, the European Commission has upgraded its assessment of Bulgaria's economic growth from 1.7% to 2.2% in 2015 and has retained the same expectations for the growth rate in 2016 and 2017.
It strikes that the Commission's forecast for a GDP growth of 2.2% in 2015 is comparatively low, given that the reported data of NSI for the nine months of 2015 show a real GDP growth of 2.7% based on seasonally-adjusted data and 3% based on seasonally unadjusted data. This assessment of 2.2% could be interpreted by the fact that the Commission expects the GDP growth in Q4 of 2015 to be below 1% year-on-year. This is not confirmed by the growth rate break-down by quarter as given in table 3 of the annexes. It could be seen there that the Commission expects for the real growth for Q4 of 2015 to be 2.9% year-on-year. The same lack of consistence between quarterly GDP estimates and annual figures is seen for the quarterly data for 2016. The GDP growth rate for each of the four quarters of 2016 varies between 1.8 and 2.4%, while the annual figure in the table referring to Bulgaria is 1.5%. There is a mismatch in the Commission's current account figures published in the table in the section for Bulgaria and in the text of the forecast.
Comparison between the Commission's forecast and reported data on Bulgaria
| Year (t) | Spring forecast (t) | Autumn forecast (t) | Winter forecast (t+1) | Reported data (t) |
| 2015 | 1.0 | 1.7 | 2.2 | 3.0* |
| 2014 | 1.7 | 1.2 | 1.4 | 1.5 |
| 2013 | 0.9 | 0.5 | 0.6 | 1.3 |
* Reported data for the nine months of 2015
Recently, the Commission's forecasts have shown some deviation of the growth of the Bulgarian economy below the reported values.
| INDICATORS | Reported data | MoF | EC | MoF | EC | MoF | EC |
| 2014 | 2015 | 2016 | 2017 | ||||
| GDP, real growth, % | 1.5 | 2.0 | 2.2 | 2.1 | 1.5 | 2.5 | 2.0 |
| Private consumption | 2.7 | 0.5 | 0.7 | 1.5 | 1.4 | 2.6 | 1.7 |
| Gross fixed capital formation | 3.4 | 1.3 | 0.4 | 0.7 | -2.1 | 1.9 | 0.5 |
| Exports (goods and services) | -0.1 | 8.1 | 5.7 | 4.6 | 4.4 | 4.8 | 4.8 |
| Imports (goods and services) | 1.5 | 6.2 | 3.2 | 3.3 | 3.2 | 4.4 | 4.1 |
| GDP deflator, % | 0.4 | 0.8 | 1.1 | 0.6 | 1.5 | 0.9 | 1.5 |
| General government balance, % | -5.8 | -2.8 | -2.5 | -1.9 | -2.3 | -1.1 | -2.0 |
| Current account balance (% of GDP) | 1.2 | 2.1 | 1.8 | 1.6 | |||
| HICP, annual average, % | -1.6 | -0.9 | -1.1 | 0.5 | -0.1 | 1.0 | 0.9 |
| Unemployment rate, % | 11.4 | 9.9 | 10.1 | 9.1 | 9.4 | 8.5 | 8.8 |
| Employment (ESA 2010) | 0.4 | 0.3 | 0.3 | 0.4 | 0.4 | 0.6 | 0.5 |
The Commission projects a considerably lower gross fixed capital formation over the entire forecast period. The MoF and Commission forecasts of the dynamics of exports, imports, contribution of net exports to GDP growth and current account balance do not differ substantially.
The MoF expectations for the labour market developments in line with the latest official forecast from October 2015 are similar to those of the Commission. The Ministry of Finance is slightly more optimistic about its expectations for the unemployment rate in the next two years mostly supported by the better-than-expected economic development. The expectations for the dynamics of the compensation of employees/head in 2015 and 2016 are also close, with some difference observed in the trend for 2017. The MoF forecast sets an acceleration for this indicator in line with the expectations for a higher economic activity.
The Commission's forecast of the annual average HICP in Bulgaria in 2016 is for a deflation of -0.1%, with a consumer price growth of 0.5% set in the macro framework of the Ministry of Finance. The reasons for those differences may be sought mainly in the different period of drafting of the two papers, with the Commission already having the reported data for the inflation for the entire 2015. Furthermore, the different period also relates to a difference in the basic assumptions, such as the expectations for the Brent oil price and the EUR/USD rate of exchange, which are higher according to the autumn forecast of the Ministry of Finance as against the winter forecast of the European Commission.