As a response to the outbreak of the COVID-19 pandemic in the spring of 2020 Bulgaria introduced a State of emergency from 13 March to 13 May. After that period the State of emergency has been replaced by an Extraordinary epidemic situation, which has been extended until 31 August 2021. After severe second and third waves of infections with partial lockdowns, currently most containment measures have been relaxed. Unfortunately, new cases have been on the increase recently, with the vaccination rate of the population still being relatively low as compared to the other EU countries.
Gross Domestic Product – flash estimates
According to NSI flash estimates, GDP increased by 9.6% yoy (s.a.) in Q2 2021. The economic growth was driven by domestic demand with final consumption up by 6.7% and fixed investments up by 4.2%. The growth of export was 20.3%, while import went up by 28.6%.
Short-term Business Statistics
In June, the growth of short-term indicators again slowed down but remained high. Industrial production increased by 9.7% compared to June 2020, with growth slowing down in almost all sectors except for the manufacture of machinery and equipment, which had the major contribution to the growth. The dynamics of industrial turnover on the domestic market continued to be driven by electricity, gas, steam and air conditioning supply, while the turnover from exports slowed down due to weaker growth in manufacturing of basic metals. The turnover growth in retail trade continued to be over 20%, while the 4.7% increase in construction production was driven by civil engineering.
In July, the consumer confidence continued to improve, reaching its highest value since 2008, while the business climate indicator remained at its June level. Respondents in construction, industry and services showed more reserved expectations for the future business situation of the enterprises. At the same time, in retail trade fewer respondents indicated insufficient demand as obstacle for the activity.
Labour market
Although the number of registered unemployed is below the levels observed in 2019, activity and employment rates in the country are still below their values in the last pre-COVID-19 year. The activity rate of the population aged 15 to 64 was 71.9% in Q2 2021, while the employment rate of the population of the same age group was 67.8%. Thus, they were lower by 1.9 and 2.9 pps, respectively, compared to their values in the second quarter of the pre-crisis 2019. The unemployment rate was 5.7%. At the same time, the number of registered unemployed followed a steady downward trend and in July 2021 they were 165.1 thousand, down by 4.3% compared to the same month of 2019.
Wages
The country’s wage dynamics kept a double-digit rate of increase in Q2 2021. Average wage growth accelerated to 14.1% yoy in nominal terms, up from 11% yoy in the first three months and 5.7% yoy a year ago. Real wage growth, deflated by the HICP, reached 11.6%. Similar to the first quarter, recent developments were largely driven by public sector dynamics (up by 19.5% yoy). Wages in the private sector also increased at a double-digit rate of 12.3%.
The highest increases have been reported by hotels and restaurants (44.7% yoy), followed by arts, entertainment and recreation (25.2%). As a result, pay levels there have recovered and overcome the reductions in 2020 due to the imposed containment measures. Upward wage dynamics have been reported also by the activities with the highest growth of employees - information and communication, and construction. By contrast, real estate and financial and insurance activities posted the lowest rates of increase, up by 0.2% and 3.5% yoy, respectively.
Inflation
HICP inflation was 0.7% mom in July. In line with the high tourist season start, services prices rose by 1.2% over the previous month and had the largest positive contribution to the monthly inflation rate. Higher prices have been reported by air passenger transport (22.9%), package holidays (14.3%) and accommodation services (12.8%). Transport fuels also ranged among the items with the largest positive contribution to the total index, as their prices went up by 3.8% along with the continuing upward trend in international prices of crude oil. Administered prices also increased by an average of 1.5% in July, after the price hikes of electricity (4.4%), heating (6.9%) and central gas supply (6.3%). On the other hand, food prices posted a minor decrease, down by 0.2%, mostly due to lower prices of unprocessed food and those of vegetables in particular. Their prices declined by 4.6% under the influence of seasonal factors, while processed food prices slightly increased, up by 0.4% mom. Prices of garments and footwear also went down during the month, down by 2.1%.
The annual HICP inflation rate decelerated to 2.2% in July, down from 2.4% yoy in the previous month. This was almost entirely due to a significant reduction in the contribution of services, as the annual rate of increase in their prices narrowed from 2.0% in June to 0.3% yoy in July. Lower prices as compared to the same month in 2020 have been reported by services related to accommodation and package holidays, as well as to communication. These services price dynamics largely accounted for the observed reduction by almost a half in the core inflation to 0.8% yoy in July.
External sector
The trade deficit increased to EUR 334 mln in May from EUR 57.2 mln a year earlier. The growth of export of goods (up by 37.6% yoy) was outpaced by the growth of import (up by 50.7% yoy) which brought about the deterioration in the trade balance. Both export and import were mainly driven by the growing trade with EU countries and the increase in international commodity prices. In May, export of services increased by 7.3% yoy, while import of services grew by 20.4% yoy. The gradual recovery in international tourism facilitated services flows both in and out of the country. As a result of the trade with goods dynamics, the current account reached a deficit of EUR 98.8 mln compared with a balanced position in May 2020. In January-May the current account balance turned into deficit of 0.2% of projected GDP compared with a surplus of 0.5% of GDP a year earlier.
With the newly published data for May, the BNB revised the Gross external debt series up to 2015. The data are compiled according to the latest IMF Guide (2014) methodology. The allocated SDRs were included into Central bank debt and insurance and pension schemes liabilities into other sectors’ debt, which led to a higher debt stock. At end-May 2021 GED stood at 61.9% of projected GDP.
Financial sector
The annual growth of credit to the private sector remained unchanged in June (6.4%), as the acceleration in credits to households was offset by a slowdown in credits to non-financial enterprises. Credits to households grew by 10.4% yoy as compared to 9.7% a month earlier, and received a boost mainly from credits for house purchase which increased their pace to 14.5% (13.4% at end-May). Consumer loans also accelerated from 8.7% to 9% yoy in June, in line with the strong growth of private consumption, recorded in the second quarter of the year. Corporate loans slowed down to 3.2% from 4.1% yoy in May entirely due to a lower growth of long-term loans in this segment.
Weighted average interest rate on new time deposits of NFCs and households went in negative territory for the first time in June and stood at -0.05%. This happened after the return on deposits of NFCs went more negative at -0.25%, while the interest rate on deposits of households hovered close to its historical minimum at 0.08%. Weighted average rate on new loans for house purchases reached a new historical low in June and stood at 2.75%.
Fiscal sector
At the end of June, the Consolidated Fiscal Program (CFP) reported a surplus of 0.1% of projected GDP. In H1’2021 CFP receipts increased by 15.5% yoy. Tax revenues had the largest positive contribution. Among them, revenues from indirect taxation reported the highest contribution. VAT revenues growth in H1’2021 reached 17.8% yoy. The increase in receipts from excise duties accelerated to 2.6%, which was mainly due to fuels and to a lesser extent alcohol and alcoholic beverages commodity groups. Revenues from direct taxes and social security contributions also posted double-digit increase, while grants shrank by 20.4%. CFP expenditure for the first half of 2021 was BGN 4.8 bn (24.3%) higher than in the same period of 2020. The highest contribution to the reported growth had social spending (up by 21%), subsidies (70.9%), staff payments (18.5%) and current maintenance (24.5%).
Government debt for the first six months of 2021 amounted to 24.5% of projected GDP, versus 20.9% of GDP a year earlier.
Source: Ministry of Finance