Bulgarias economic growth is expected to exceed 5.3 percent in 2006, according to forecasts released on August 3 by the independent Centre for Economic Development (CED).
The Government earlier made a forecast that Bulgarias gross domestic product (GDP) will grow by a real 5.3 per cent in 2006.
In the first three months of 2006, the Bulgarian economy registered real growth of 5.6 per cent.
The dynamics of the short-term indicators give us grounds to project that 2006 annual economic growth will be higher than the projected value of 5.3 per cent, CED said in its report.
Services are again the main driver of growth, while industry and construction register a slowdown. No change is observed in the development of agriculture and stagnation in this sector continues.
Unemployment registers a stable downward trend and investments in equity are up for a third quarter in a row, while growth in final consumption is more moderate. These indicators give grounds for optimism.
On the other hand, the current account deficit on the balance of payments is steadily up, accounting for 7.3 per cent of GDP in the period January-May 2006, or up 73 per cent on the deficit for the same period of last year.
Foreign direct investments cover only half of the trade deficit. Exports, however, show a trend of higher increase against imports, which is expected to persist. If foreign investments preserve their sustained growth, as anticipated, the negative economic effects of the increasing current account deficit on the balance of payments would not be registered.
From the beginning of 2006 until June, consumer prices were up 2.9 per cent and were not expected to increase their levels in the summer months, owing to a seasonal decline in food prices that account for a significant relative share of the consumer basket.
Overall, the financial sector registers growth and remains relatively stable.
At the same time, some negative trends are observed. The first concerns the growing credit expansion of commercial banks, which has a negative effect on economic stability and is also a factor for the current account deficit. On the other hand, credit expansion contributes to a jump in the short-term foreign indebtedness of banks and, respectively, of the whole economy. According to CED, the capital market registered record-breaking turnover values and sustainable growth in indexes. It is, however, still dominated by incidental block transactions, and not by sustainable trade on the regulated market, the centres experts found.
Development of public finance is characterised by persistence of major trends established in previous periods. Among these are: the increase in the actual quota of reallocation through the budget and the strengthened role of the state in the Bulgarian economy.
Draft changes of tax legislation contain some good elements but fail again to be structured into an economically sound system.
As regards the individual sectors, development of construction and real estate services has been most dynamic. Transport, energy sector and agriculture register stagnation or decline. The public administration and the business are mounting efforts in the preparation for European Union membership, in particular in the implementation of environmental standards and the absorption of structural funds, CED said.
