Bulgaria: Economy decelerates slightly in Q3 but maintains strong growth momentum
The economy grew 3.7% in annual terms in the third quarter of the year, matching the preliminary estimate but slowing from the previous quarter’s 3.8% expansion, according to comprehensive data released by the National Statistical Institute. Meanwhile, on a quarter-on-quarter basis, growth in seasonally-adjusted terms decelerated to a revised 0.8% (previously reported: +0.7% quarter-on-quarter) from 0.9% in Q2.
Total consumption continued to cool (Q3: +4.9% year-on-year; Q2: +5.5% yoy), mainly due to household spending growth slowing amid subdued consumer confidence. Contrastingly, fixed investment picked up in the third quarter, rising 1.8% year-on-year (Q2: +1.5% yoy).
The external sector’s contribution to growth continued, however, offsetting souring domestic demand. Exports of goods and services rose 1.3% year-on-year, providing a quick rebound from Q2’s slump (Q2: -2.5% yoy). Meanwhile, imports expanded 1.2%, swinging back from Q2’s contraction of 3.9%.
Growth should slow somewhat this year compared to 2019, as softening domestic demand will weigh on economic activity. Private consumption growth is set to slow, but will remain reasonable thanks to the tight labor market and low interest rates, which should also promote higher levels of fixed investment. Although both exports and imports look set to remain robust, a challenging external backdrop poses a downside risk to the outlook.
Commenting on the apparent strength of the labor market, Dragomir Belchev, an economist at the Economic Policy Institute, noted:
“Data on employment and unemployment rate show significant improvement in the labor market. However, in terms of the absolute number of employed persons, employment seems to have reached its peak due to the aging population and the shrinking labor force. In 2018 every 100 people leaving the labor market were replaced by only 63 – a trend that is expected to keep its downward direction in the years to come. Therefore, it will inevitably affect employment in every sector of the economy in a long-term perspective.”
Furthermore, regarding potential risks to the economic outlook, Petia Tzekova, chief economist at United Bulgarian Bank, commented:
“The risks […] are related to the unstable geopolitical environment and the increasing number of protectionist measures and together with the ambiguity of Brexit’s course will start to give an increasingly tangible impact on the Bulgarian economy.”