As two silver linings of the economic slowdown, Bulgaria’s trade deficit shrank by 44.6 per cent year-on-year to EUR 339 million in January and foreign direct investment (FDI) contracted by 37.4 per cent to 206.2 million euro, data of the Bulgarian National Bank (BNB) showed.

Economists welcomed the figures, accounting for the faster slide in imports compared to exports with the fall in energy and raw material prices. The weaker investment activity was the second major factor, according to expert.

Bulgaria’s current account gap narrowed by 45 per cent year-on-year to a nominal 439 million euro, or a preliminary 1.2 per cent of the projected gross domestic product (GDP) compared to a revised 2.4 per cent of GDP a year before.

FDI covered 46.9 per cent of the current account gap in January, growing from 40 per cent a year before.

The financial account ended January with a shortfall of 634.4 million euro versus a surplus of 524.3 million euro in the same month of the previous year. The deterioration was driven by currency deposits of foreign banks. A boom on the Bulgarian credit market in the nine months of last year backed by local lenders’ international headquarters cooled off at the end of 2008 through January as banks started to sober up. Thus the bulk of the liquidity the central bank made available by relaxing the reserve requirements was deposited and used to pay off debts.

"The interbank market turned out too small to take in all the released resources and instead of parking them in accounts with the BNB that bring no interest, banks have chosen to deposit oversees to produce return," Georgi Angelov, macroeconomist with the Open Society Institute, said.

His view was echoed by Lachezar Bogdanov of local think-tank Industry Watch, who said: "Given that banks are more liquid than before but at the same time they have tightened the credit, it is normal that they should have resources for which they should seek return".

Investor withdrawals from the local stock market and from other financial undertakings continued, which is seen in the outflow of portfolio investments. Having also started last year, the trend accelerated in January.

Source: Dnevnik.bg