Bulgaria: Economy contracts at milder rate in the third quarter
November 13, 2020
According to a flash estimate, GDP declined 5.2% year-on-year in the third quarter—a softer drop than the second quarter’s 8.6% slump—as the gradual lifting of Covid-19 containment measures enabled some recovery in activity.
A preliminary breakdown showed that the third quarter’s more moderate contraction largely came on the back of a notable rebound in total consumption, which expanded 9.3% year-on-year and contrasted Q2’s 0.3% decline. Moreover, fixed investment fell at a softer rate of 5.7% compared to the previous quarter’s 10.9% contraction. On the external front, however, exports of goods and services decreased at a more pronounced rate of 22.3% in Q3, amid still-muted European demand. That said, the decline in imports of goods and services moderated notably to 3.4% (Q2: -19.7% yoy).
On a seasonally-adjusted quarter-on-quarter basis, economic activity bounced back, with GDP growing 4.3% in Q3, contrasting the previous period's 10.1% contraction.
Looking ahead, in 2021, the economy is set to rebound from its coronavirus-induced contraction this year. Household and capital spending should expand solidly, while a pickup in global demand should support the external sector. Heightened uncertainty and a prolonged health crisis pose key downside risks, however.
Commenting on the outlook, Valentin Tataru, Romania economist at ING, reflected:
“Today’s flash GDP data came a bit like a cold shower, softening our otherwise hopeful stance on Bulgaria’s economic resilience and growth prospects. […] On the bright side, Bulgaria has entered this crisis with ample fiscal space and an almost impeccable track record of fiscal discipline. The recently adopted budget deficit target for 2021 of -3.9% coupled with the permanent planned increase of wages and pensions will help to restore growth and confidence. Under these circumstances, while we do maintain the -4.5% growth forecast for this year, we need to make a relatively important adjustment to next year's growth forecast, which we now see at 3.0%, versus the initial 4.5%.”
More detailed data will be released on 4 December.
Author: Hanna Andersson, Economist