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Monthly Report on Bulgarian Economy for June 2022


Gross Domestic Product

GDP growth reached 5% in Q1 2022 with a positive contribution from domestic demand. Household consumption went up by 6.4%, which is a deceleration compared to the previous quarter, as the higher inflation led to lower growth in households’ real disposable income. Investments were up by 36.3% due to a significant contribution from change in inventories, while GFCF was down by 4.4%. Imports increased by 14.1%, backed by the high growth in domestic demand, while the growth of export of goods and services decelerated to 7.4%. GVA increased by 4.2% yoy. With the biggest contribution to growth was manufacturing followed by services mainly the information and communication activities and trade; transport; accommodation and food services. The GVA in mining and quarrying; electricity, gas, steam and air conditioning supply increased by more than 20% for a second quarter in a row.

Short-term Business Statistics In April, the growth of short-term indicators decelerated somewhat. Industrial production rose 13.2% and the deceleration was mostly on the back of energy products. Among the sectors with a significant contribution to the increase in industrial output were the manufacture of fabricated metal products, manufacture of beverages and wearing apparel. Industrial turnover growth (49.3%) continued to be driven by domestic turnover and mainly energy and food products. The construction production index was down by 7.7% with a decrease both in building construction and civil engineering. The growth of the retail trade turnover was 5.7% as there was a decrease in the trade with food products. In May, survey indicators posted a slight decline. Business climate indicator weakened mildly (-0.6) due to more reserved expectations for the business situation of the enterprises in construction and retail trade. 54% of the respondents in retail trade expected increase of selling prices over the next 3 months which was an increase by almost 17 pps compared to April. Consumer confidence was down by 3 points as consumers’ views on their future financial situation and expectations about the general economic situation worsened.

Labour market

Employment registered an increase of 1.6% yoy in Q1 2022. The number of employed persons reached 3 368.4 thousand, which is less than 1% lower compared to their number before the pandemic (first quarter of 2020). Employment growth in the country was mostly driven by services, where all economic activities (except financial and insurance activities) recorded a job increase on a year earlier. Indeed, employment in all services’ activities (except Wholesale and retail trade; repair of motor vehicles and motorcycles; transportation and storage; accommodation and food service activities) recovered to the levels before the COVID-19.

Productivity

In Q1 2022, labour productivity and compensation per employee gained further speed, primarily driven by industry excl. construction. The overall real productivity increased by 3.3% yoy, while in industry excl. construction – it went up by 14%. Negative productivity rates were reported in construction (- 14.1%) and part of service sector activities such as real estate; arts, entertainment and recreation and professional administrative activities. Compensation per employee increased by a double digit nominal rate of 15% yoy. Income dynamics speeded up across industrial activities excl. construction (up by 24.4%). The growth of compensation per employee in services and construction remained relatively lower (11.5% and 10.2, respectively). The recent upward trend of compensation per employee above productivity growth contributed to a nominal unit labour costs (NULC) increase of 11.5% yoy. RULC dynamics however was still negative (-3.8%) due to the strong positive impact of higher prices on gross value added growth in nominal terms.

Inflation

Monthly inflation in May was 1.3% with a positive contribution from all subcomponents of the index. The price increase of food and non-alcoholibeverages slowed to 2% mom, yet again contributing the most to the increase in the overall index. Prices of processed foods rose by 3.5% during the month, while those of unprocessed food fell by 2.3% mom. Energy goods also made a significant contribution, as transport fuels rose by 4.4% compared to April following Brent price dynamics on world markets. There was also a 11.3% hike in natural gas prices during the month. Consider-ing the other sub-components of the in-dex, the prices of non-energy industrial goods increased by 0.7% and those of services - by 0.6%. Rising prices for transport services continued to reflect the side effects of more expensive transport fuels. Only the prices of pack-age holidays decreased during the month – down by 13.1%, while prices of accommodation and catering services rose by 3.2% and 1.9%, respectively.

The annual inflation rate accelerated to 13.4%. Transport fuels, followed by processed foods largely accounted for these dynamics. Their increase in May was 51.1% and 22.1% yoy, respectively, as energy and food products continued to account for over 70% of the increase in the index. Core inflation accelerated to 9.7% compared to May 2021.
 
 External sector
 
The current account posted a deficit of 1.2% of projected GDP in Q1 2022, down from a slight surplus of 0.1% a year ago owing to larger negative bal-ances on trade with goods and pri-mary income in the period. However, in March alone, export of goods growth (42.1% yoy) outpaced the increase in im-port (36% yoy), reversing the trend in the previous months. The increase was due to strong contribution from export of ce-reals, petroleum products and electricity as well as precious metals. Repayment of investment income continued to be the main driver of the widening primary in-come deficit in March. As regards ser-vices, the recovery in foreigners’ travel accelerated throughout the quarter, as both receipts and number of visits sur-passed the pre-pandemic level in March.
Gross external debt stood at 54% of projected GDP at the end of the first quarter, declining from both a month and a year ago, as the Government re-paid EUR 1.25 bn at end-March on an expiring 7-years Eurobonds.
 
 Financial Sector
 
Credit to the private sector in April preserved its March rate of increase, up by 10.7% yoy. This development was due to a marginal deceleration of the in-crease in loans to non-financial corpora-tions and a marginal acceleration of those to households. At the same time, loans to financial companies decreased vs. a month earlier, down by 4.1%. Cor-porate credit grew by 7.7% yoy vs. 7.9% yoy in March. Compared to the same pe-riod of the previous year non-financial businesses continued to search more overdraft, up by 16.5% yoy. Households credit increased by 14.2% yoy at the end of April vs.14.1% yoy in previous month. Demand for consumer and house pur-chases loans continued to be high, and up by a double-digit rate of 11.9% yoy and 18.1% yoy, respectively.
Interest rates on new loans to companies and households did not change direc-tion. Weighted price for corporate loans new business continued to de-crease and went further down by 14 bps over to the previous month to 2.24%, while the weighted average interest rate on new consumer loans and those for house purchase remained close to their March levels. The weighted average re-turn on new time deposits of NFCs and households went up around zero bound. This was both due to the less negative rate on NFCs’ deposits, and the average rate on households’ deposits marginally increased by 2 bps. However, by type of currency, weighted price of new NFC de-posits in BGN continued to decrease (by 20 bps), while for the new households’ term deposits in national currency, it was up by 3 bps.
 
 Fiscal sector
 
The positive balance on the Consoli-dated Fiscal Program increased to BGN 882.5 mln or 0.6% of the pro-jected GDP at the end of April. An in-crease was reported both compared to the previous month (0.2% of GDP) and compared to the same period of the pre-vious year (0.1% of GDP). The increase in revenues, up by 6.4% yoy, remained stronger than that in expenditures, up by 2.2%. The main contributor to the higher receipts were tax revenues and in partic-ular indirect taxes, up by 15.2% yoy. The latter was due to higher revenues from VAT on imports, whose growth contin-ued to accelerate, up to 58.7%, due to both higher prices and quantities of traded goods. Social and health contri-butions also supported the increase in tax revenues, growing by 7.6% yoy. For the first time since the beginning of the year, an increase was reported in direct taxes. It came as a result of an increase in corporate tax revenues, while per-sonal income tax receipts continued to decrease due to higher tax relief on chil-dren. Total expenditures went up by 2.2% compared to April 2021, driven by subsidies to enterprises and social spending. Capital and maintenance ex-penditures decreased by 21.6% and 2.1%, respectively.
The ratio of consolidated government debt to GDP reached 21.8% at the end of April, which was a marginal increase compared to the previous month as a re-sult of rising domestic debt. Compared to a year earlier, the debt decreased after a debt of BGN 2.4 billion on seven-year Eurobonds issued on the international capital markets was repaid in March. 

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