Finance Ministry Analysis Shows Impact on Pandemic on Bulgarian Economy

NW 19:02:01 30-06-2020

Finance Ministry Analysis Shows
Impact on
Pandemic on Bulgarian Economy

Sofia, June 30 (BTA) - An overview of the Bulgarian economy for June prepared by the Finance Ministry shows the impact of the coronavirus pandemic. The overview is based on statistics available as of June 16 and was published on Tuesday.

Bulgaria introduced a coronavirus state of emergency on March 12 and lifted it in mid-May but some restrictions still remain in force.

The first-quarter GDP increased by 1.2 per cent year-on-year compared to a growth of 2.9 per cent in the previous quarter. The slowdown resulted from lower domestic demand. Exports went up by 1.8 per cent leading to positive net exports contribution. Household consumption increased at a slower pace due to the imposed Covid restrictions and higher uncertainty.

Growth in Gross Value Added (GVA) decelerated to 1.1 per cent as value added in industry decreased. Services were up by 1.3 per cent with the biggest positive contribution from public administration, education, health and information and communication.

Sharp deteriotation in April

Short term indicators showed a sharp deterioration of the economic picture in April as a result of the Covid containment measures. Industrial production declined at a double-digit rate of 15.7 per cent year-on-year, due to a reduction in all economic activities except for mining and quarrying. The decrease in turnover also accelerated to a double-digit rate and was attributable to shrinking sales on both domestic and international markets. The fall in construction speeded up. In retail trade, a record decline was reported of 20 per cent year-on-year. The decrease was broad based, as auto-motive fuels; textiles, clothing and foot-wear; computers and software and food, beverages and tobacco had the highest negative contributions.

Some recovery in May

In May some indicators started recovering. Business climate was up 11.8 points month-on-month after a drop of 47.1 points in April. Companies expectations for the business situation improved in all sectors. The current situation and demand in services, however, continued to be assessed as unfavourable. Consumer confidence also rose, up by 7.5 points month-on-month, on the back of improved expectations for the households' financial situation and the economy in the coming months.

Unemployment increases as so does productivity

In Q1 the number of employed declined to 3,398,200 thousand, down by 1.3 per cent year-on-year, mainly because of the reduced economic activities in many sectors due to Covid. The decline was largest in agriculture, industry (except construction) and wholesale and retail trade; repair of motor vehicles and motorcycles; transportation and storage; accommodation and food service activities. As employment declined, labour productivity increased in all sectors and was the main driver for the increase in GVA in the quarter. The highest productivity growth rate was observed in agriculture, up by 5.2 per cent year-on-year.

Inflation influenced by lower energy prices

The drop in energy prices caused an overall decrease in consumer prices of 0.3 per cent month-on-month in May. Energy prices went down by 2.3 per cent due to lower prices of gas, heating and fuels for personal transport equipment, which came on the backdrop of increasing energy commodity prices on international markets, led by higher crude oil prices. Food prices in Bulgaria increased by 0.2 per cent in May. Annual inflation continued to decline for a fourth consecutive month in May. It slowed down to 1 per cent year-on-year compared to 1.3 per cent year-on-year in April. Energy goods had the highest contribution, as the price decrease accelerated. Unprocessed food inflation accelerated, while the slow-down in the growth of processed food prices continued in May. This resulted in lower core inflation, which edged down to 2.4 per cent year-on-year in May, from 2.5 per cent in April.

Export declines, trade deficit widens

In March, the current account balance deteriorated on a year earlier for the first time since August 2019. The monthly deficit widened due to a larger trade deficit. The decline in exports of goods (5.9 per cent year-on-year) outpaced that of imports (down by 4.2 per cent). The decrease in trade was more pronounced with EU countries. By contrast, surplus in services increased by 6.7 per cent year-on-year. Export and import of services decreased by 19.3 per cent year-on-year and 27.3 per cent, respectively, driven mainly by a decline in travel. Remittances from abroad went down by 66.4 per cent year-on-year or almost 80 mln euro. Favorable developments in the first two months of the year supported the doubling of the current account surplus in Q1 to 501.6 million euro or 0.8 per cent of projected GDP.

In March, Gross external debt declined by 0.6 percentage points year-on-year
to 55.8 per cent of projected GDP. All sectors contributed to the improvement.

Financial sector

The pandemic and downscaled economic activity seem to have affected the demand for loans in April. Growth in lending decelerated for the private sector, non-financial corporations (NFC) and consumer loans. At the same time, the dynamics of house purchase loans shows no significant negative impact. Although bad and restructured loans have kept a constant share of 8.8 per cent in total households and NFC credit, in April the stock increased for the first time since October 2014, up by 0.9 per cent year-on-year, led by corporate loans.

Budget still in surplus territory

Despite a decrease in revenues, the budget balance remained at a surplus for a fourth consecutive month and at end-April reached 1.4 per cent of projected GDP. For the first time since the beginning of the year accumulated budget proceeds decreased, down by 3.6 per cent year-on-year. It resulted from a drop in tax and non-tax revenue, while grants and donations almost doubled.

The government debt reached 21.3 per cent of projected GDP.