CED Projects 2007 Inflation At 12%, GDP Growth At 6.4%, and More Than 5 Bln Euros in Direct Foreign Investment

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CED Projects 2007 Inflation At 12%, GDP Growth At 6.4%, and More Than 5 Bln Euros in Direct Foreign Investment

The Center For Economic Development is forecasting a slight slow-down in economic growth for Q3 to 6.5%. According to the experts, the nation's GDP growth for the entire 2007 will come to 6.5% (compared with 6.7% in 2006 Q3 and 6.1% for the entire 2006). The prognosis is from CED's report on “Bulgarian Economy at the end of Q3 2007” released today.

According to CED, we can expect a slight slow down in production output growth in the mid-term perspective. Sales in the sector have started to lag behind production pace y/y (8.5% and 8.7%, respectively, for Jan – Sept 2007). This is a result of the tendency to reduce production capacity in the sector (from 75% in October 2006 to 70% in July 2007).

Since 2001 there has been a record hike in investments (29.6%). Household spending is also growing at a steady pace (6.8%).

The value added in economy has been growing at an accelerated pace in H1 (by 8.2%, versus 6.1% last year). The value added in the industry sector rose 9.1% during the period and surpassed that of the service sector (8.8%). In Q2 processing industry was the fastest developing sector of industry with value added growth of 15% (versus 14.5% in Q1).

The value added in the sector of financial intermediation climbed by more than 40%, while that of the agrarian sector declined by 2.3% y/y (after a 2.5% hike in Q1, and a 5.3% decline in Q2). According to CED, a rebound to last year figures is unlikely.

Investments in core capital have risen 29.6% y/y, versus 16.5% last year. The growth in Q2 is however, 10 percentage points lower than in Q1 – 24.7% versus 35.9%, respectively. The majority of investments has been directed to the processing industry.

Consumer spending growth has entered a standstill stage. In H1 it grew by 6%, versus 6.1% a year ago. In Q2 the figures rose by 5.2%, versus 7% in Q1, and is lower than Q1 2006 – 7.2%.

The nation's current account deficit has grown from 7.5% to 12% of the GDP. Trade balanced deficit and lower positive balance from current transfers and net income account for more than 96% of it (1312 mln euros).

The only positive contribution comes the balance in the service sector – in the amount of 277 mln euros. One of the highest risks for the macroeconomic conjuncture is the increasing trade balance deficit (more than 5 bln euros CIF/FOB for the Jan – Aug 2007 period).

Direct foreign investment in the first eight months of 2007 exceed stand at 3.4 bln euros, which is 22% up from the same time last year. These figures are expected to continue to grow and to reach 5 bln euros by the end of the year. It is interesting to note that direct foreign investment is greatest in real estate sector (35%), than in production (25%) and financial intermediation (20%).

In spite of the rising worries that the problems of the credit industry worldwide might reflect on the nation's real estate sector and its related areas – construction, tourism, and financial services, interest in it stays positive and investors are apparently still finding potential for good return on investments in the area. The real estate market in Bulgaria will continue to be attractive for foreign investors because of its good risk/return ratio. However, reforms in the public sector are a must, CED insists.

Jan – Sept 2007 inflation stands at 8.9% since December 2006, versus 2.5% for the respective period in 2006. As a result of the relatively fast hike in consumer prices we saw in July, August and September, year on year inflation has doubled from 5.6% in July 2006 to 13.1% in July 2007.

CED expects total 2007 inflation to come to 12%, against 6.5% for the entire 2006.

Unemployment drops to 6.8% in Q2, versus 9% a year ago. Unemployment among young people (between 15 and 24 years of age) has declined the most – from 20.5% to 12.6%.

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