07.11.2012

The published today European Economic Forecast - Autumn 2012 of the EC shows that the upward trend of economic growth will continue, with domestic demand being the main growth driver. In spite of an adverse economic setting in the EU and an overall weak labour market in Bulgaria, GDP is projected to grow by 0.8% in 2012, 1.4% in 2013 and 2% in 2014. Compared to the EC spring forecast the revised forecast is for lower growth both in the euro area and in the EU as a whole. In the spring forecast the projected EU27 GDP growth for 2013 is 1.3% and now it is drastically lowered to 0.4%.

At the same time the EC revised upwards its projection for Bulgaria's growth in 2012 - from 0.5% in the spring to 0.8% now. These figures are lower than the forecasted by the Ministry of Finance growth during the two years but the analysts expect a stable overall domestic economic environment and relatively strong public finances.

The general government deficit is set to narrow to 1.5% in 2012 and to remain the same next year. Grounds therefor give the exceptionally strong revenue collection, primarily on account of VAT revenues. Highly appreciated is the government's important step forward in improving tax compliance by linking all retailers' cash registers online to the National Revenue Agency. Similar measures were also taken to increase compliance with excise and import taxes.

According to the analysts even though the favourable revenue trends are expected to continue in 2013, expenditure is also expected to increase substantially. The forecast takes account of the measures included in the government's 2013 draft budget proposal. Most notably, it foresees an increase of pensions by 9.3% as of 1 April 2013. Overall, the budget implies a neutral fiscal stance in 2013 and 2014, with the structural deficit estimated to remain broadly stable at slightly below 1% of GDP. General government gross debt is envisaged to increase from around 16½% of GDP in 2011 to 18½% of GDP in 2014.

In its forecast the EC also notes that after three years of strong contraction, investment activity also appears to be stabilising, supported mainly by public projects and some recovery in FDI, especially in the energy sector. For next year investment is expected to be initially supported by public sector projects funded by the EU. According to the forecast export trends are forecast to follow the expected gradual recovery in EU markets in 2013.

GDP, volume (percentage change on preceding year)

                                                                                                                      Source: EC