Bulgaria: GDP records largest drop on record in Q2
August 14, 2020
According to a preliminary reading, GDP dropped 8.2% year-on-year in the second quarter, contrasting the 2.4% expansion tallied in the first quarter. Q2’s reading marked the worst since at least 2001 and largely reflected the fallout from the Covid-19 health crisis. That said, the result beat market analysts’ expectations of a 10% decline.
A preliminary breakdown showed that the second quarter’s downturn was primarily driven by a sharp contraction in fixed investment, which fell 3.8% amid depressed business sentiment, contrasting Q1’s 1.2% expansion. Moreover, total consumption growth decelerated to 0.4% from the previous quarter’s 4.1% rise. On the external front, exports of goods and services plunged 20.3%, contrasting Q1’s 1.9% increase, amid weak European demand and severed global supply chains. Furthermore, imports declined 20.0%, contrasting the previous quarter’s 1.2% expansion.
On a seasonally-adjusted quarter-on-quarter basis, GDP contracted 9.8% in Q2, contrasting the previous quarter's 0.3% expansion.
The economy is expected to contract significantly this year due to the blow dealt by the coronavirus pandemic. Containment measures are set to hamper domestic activity, while a weak economic environment in the EU will constrain the external sector. Although robust fiscal and external metrics should mitigate the fallout, a potential second wave of the virus poses a downside risk.
Commenting on the outlook, Valentin Tataru, economist at ING Bucharest, noted:
“We remain cautiously optimistic on Bulgaria’s growth prospects this year as the country is likely to post one of the smallest contractions in the EU. For the second half of 2020, we are worried that the resurgence in the number of infections will slow the recovery through the demand channel. To balance that, the government’s fiscal expansion planned for 2H20 could reach unseen levels, as the government needs to spend around 4.5% of GDP if it wants to reach its budget deficit target of 3.0% of GDP.”
Author: Hanna Andersson, Economist