Bulgaria Economic Growth to Slow to 4% in 2011, Forecasts EIU

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Bulgaria Economic Growth to Slow to 4% in 2011, Forecasts EIU

Bulgaria's economic growth will slow down from its current annual rate of 6% to 4% in 2011, forecasts the analytical unit of The Economist magazine. The Economist Intelligence Unit (EIU) sees a marked deterioration in some business indicators towards the end of the review period, including the c/a deficit, labor costs and foreign direct investment.

The overview of the political situation in the EU newcomer does not rule out early elections in 2007-2008 that could further dampen reform efforts and worsen the economic outlook.
 
According to the EIU, the expansion of the Bulgarian economy will be hamstrung by negative population trends.

The analysis shows that Bulgaria's population will decrease to 7.4 mm over the next five years while the number of the employed will remain almost unchanged at 3.2 mn.

The real GDP growth will moderate to 5.8% in 2007, a target that matches government projections. The cabinet then expects a pick-up to 6% plus in 2009.

The latest economic data released by the Bulgarian National Bank showed a brisker-than-forecast GDP growth of 6.2% for Q1.

The biggest discrepancies between the EIU outlook for the Bulgarian economy and the official forecasts of the government are in the c/a department.

The government expects the c/a deficit to narrow to 9.7% of GDP in 2009 while the EIU sees it ballooning to 19.3% of GDP in two years' time and then further to 26% in 2011.

Nevertheless, the five-year forecast sees Bulgaria meeting the Maastricht criteria for eurozone membership by 2011 at the latest.

Finance minister Plamen Oresharski has cautioned over the last couple of months there will be no EMU rush and has pointed to 2012-2015 as the more likely target.

The EIU expects Bulgaria to keep in place its currency board mechanism for another 5 years but does not rule out pressure for it to be dismantled if the surge in domestic consumption continues and the government opts to pursue an even tighter fiscal policy.

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