The experts of the non-governmental Center for Economic Development (CED) expect Bulgaria's economy to show 1 per cent growth in the third quarter of 2010. CED's regular quarterly report anticipates a near zero decline of the economy for the full year 2010.

The economy resumed its growth in the second quarter of 2010, even though only compared to the first quarter (by 0.5 per cent), according to the report.

CED sees industry as the motor force of economic recovery. Back in January-March, it grew by 2.2 per cent, quarter on quarter, and edged 0.04 per cent up in the second quarter. Year on year, industry showed a 1.3 per cent and 2.9 per cent growth, respectively, in the first and second quarter.

In construction, the decline of monthly production has been decelerating since the beginning of the year thanks to a fast recovery of civil engineering, whose output has approximated its 2009 levels since March and in August already exceeded its levels of August 2009. CED expects the drop in value added of this sector to contract to near zero for the third quarter of 2010. Growth is possible, too, but it will also be near zero, possibly thanks to the robust performance of civil engineering.

Year on year, the monthly turnover of trade has also been tending up since March, but the growth is insignificant. Wholesale is the trend-setter in the sector. Food retail started to grow in May but in August slumped back to below zero, year on year. The business climate in retail trade deteriorated in

September.

Both trade and domestic consumption can hardly be expected to recover, year on year, earlier than the fourth quarter, according to the experts.

CED expects an inflation of not more than 3-3.5 per cent at the end of 2010.

For January-August 2010, Bulgaria's balance of payments on current account was in a surplus of 0.9 per cent of GDP, compared to a deficit of 7.1 per cent of GDP a year ago. The improvement was largely due to lower trade deficits.

Export is growing ever faster, and back in June its volume reached the pre-crisis levels. Import will be increasing at a far slower pace, which nearly halves the trade deficit compared to January-August 2009.

The value of export reached 9,800 million euro, but its structure has not shifted: raw materials and energy resources account for 60 per cent and grow faster than overall export. Spare parts alone showed a larger increase after the commissioning of two new car parts plants. Import is valued 11,860 million euro, and its structure is getting even more unfavourable. The value of imported raw materials and

energy resources rose by 17 per cent as a result of a rise in international prices,while the import of investment goods dropped by 13 per cent, mainly in the machinery department.

This means that manufacturing enterprises do not invest in an expansion and renovation of production, which is no way to achieve economic growth. The contracted import of investment goods is also related to a dramatic decline in the inflow of foreign direct investment (FDI): 835.9 million euro for January-August 2010, compared to 2,100 million euro for the same period a year ago. FDI is not expected to top 2,000 million year for the full year 2010, and next year it will grow in the order of 20 per cent.

At present the national budget deficit is due to poor performance of revenues and expenditures in January and February.

Performance improved in April-September, and if this tendency persists until the end of the year, the deficit may be less than the 3,200 million leva forecast in the updated budget for 2010.

The third quarter of 2010 saw an end to a downward trend in the country's forex reserves, in evidence since the beginning of the year. In September, the forex reserves approximated 1,200 million leva, 5 per cent more than their level of June 2010.

In January 2009 - June 2010, the monetary base (the money in circulation and the deposits with commercial banks and the central bank) averaged about 12,300 million leva, and in the third quarter of 2010 they increased to an average 13,100 million leva, exceeding the 13,000 million leva mark in all three months for the first time in 21 months.

Source: BTA