17.04.2015

The Spring Macroeconomic Forecast has taken into account the published reporting data for 2014, the developments in the external environment and the more favourable expectations for the development of the Bulgarian economy which have been witnessed since the beginning of the year and which can be seen from both the business surveys in general for the economy and for the main sectors in terms of supply, and the monitoring of consumers.

In 2014 real GDP increased by 1,7%, at an expected growth of 1,5% in the Autumn Forecast. Both the private and the public consumption had greater contribution to GDP growth than the forecasted ones. The same applies to investments. The reported real exports growth is as expected in the Autumn Forecast, while the growth of imports was a little bit higher which corresponds to the better performance of consumption and investments.

The forecasts of international organizations for the development of the world and the European economies for 2015 and 2016 are more favourable as compared to the autumn of 2014. The same applies to countries which are main commercial partners of Bulgaria.

The data on the business climate in Bulgaria in the main sectors of the economy (in terms of supply) and the monitoring of consumers, as published by NSI, show and upward trend from the beginning of 2015.

Compared to the Autumn Forecast, the economic growth for 2015 and 2016 has been increased by 0,6 and 0,2 p.p., respectively. However, for 2015 it is expected to slightly slow down to 1,4% compared to the previous year due to the lower contribution of the public sector and still cautious restoration of private sector demand. The positive development of private consumption will continue and growth will speed up to 2,4% in 2015. Private investments are also expected to stabilize (versus their drop in the past years).

The improvement in the external environment, expressed in higher growth of the European and the world economies, will lead to an increase in the real exports of goods and services up to 2,8%. The latter will provoke an increase in the imports of raw materials for the export oriented sectors. On the other hand, the expected slowdown in the growth of consumption and investments will have a detaining effect on imports which will grow by 3,6%. As a result, the negative contribution of net exports will shrink to 0,6 p.p. versus 1,1 p.p. for 2014. The current account balance will be slightly positive in 2015.

In the period 2016-2017 the economic growth will gradually speed up to 2,3%, the major contribution being that of private consumption and investments. Exports of goods and service will also increase, influenced by demand from major commercial partners, which will provoke a corresponding acceleration of imports growth. Influenced by the negative trade balance, the current account balance will gradually decrease to a deficit of 1,5% of GDP in 2018. The expectations are that FDI will stabilize at the level of around 3% of GDP in the period 2015-2018.

In 2018, GDP growth is expected to slow down as a result of lower private consumption growth. The main contributor to this development will be the slowdown in employment growth influenced by the unfavourable demographic trends in the country

In 2014, the labour market began to recover more quickly than expected. The average number of employed persons will rise by 0.3% in 2015, while unemployment will fall to 10.8%. With the gradual acceleration of economic activity in the period 2016-2017 the growth rate of employed persons is expected to reach 0.9% in 2017 before slowing down in 2018, and unemployment rate to gradually drop to 9% at the end of the forecast period.

With the increase in employment in 2015 labour income will continue to rise moderately. A more substantial acceleration in their dynamics is expected in the period 2016-2018 in the environment of higher economic activity and labour productivity growth in the country.

The change in the external assumptions for international commodity prices and the volatility of the euro exchange rate to the dollar required a revision of the estimates for inflation developments in the country. The annual average inflation is lowered by 0.5 pp for 2015 taking account of the considerable changes in the international prices of oil and other commodities, as well as the depreciation of the euro against the dollar observed since the end of 2014: for the period November 2014 - February 2015 the Oil Brent prices fell by almost 34% in US Dollars, while the European currency depreciated by around 12% to the dollar. The appreciation of the dollar against the euro was the reason for discontinuation of the negative trend in the non-energy raw material prices in euro, and for 2015 a slight increase of those prices in BGN compared to 2014 is registered. The forecast non-energy goods price increase on the international markets and the higher prices of imported durable goods (in BGN) would reflect in a rise of 0.8% of the overall level of consumer prices at the end of 2015. However, annual average inflation will remain negative due to the drop in fuel prices at the end of the previous and the beginning of this year. The average annual HICP in 2015 is expected to be -0.6% and in the period 2016-2018 the inflation will be positive, accelerating to 2% at the end of the period.