The growth of GDP is due mainly to the good export figures and the utilization of EU funds.

The average annual deflation for this year will reach 0.8%. This is one of the main conclusions in the latest quarterly analysis by the economic team of UniCredit Bulbank. The data shows that the deflation as a whole is influenced by one-off factors such as a drop of the food prices because of the very good wheat harvest last year, as well as the reduction of the prices of electricity and heating following the government decisions. For 2015, however, there is expected an average annual inflation of 1.2%.

In the basket of goods and services used for evaluation of the dynamics of prices, 45% of the positions saw a decrease on an annual basis in February 2014. For comparison, the values for December and November last year were respectively 40 and 35%. According to the economists of the bank, however, it is more important that there is no evidence of postponement of the purchases of households in order to benefit from the lower prices, which is supposed to be seen in a deflation environment.

CPI hit a historic low of -2.6% on an annual basis in February 2014 compared to -1.6% in December 2013. This is due to new price cuts with electric energy, the lower fuel prices and the seasonal lowering of the prices of clothing. Although it remains less evident from the dynamics of the general inflation, the drop of base prices also continues to be record-breaking, falling to -0.7% on an annual basis in January 2014, with -0.3% in December 2013.

“The greater activity of Bulgarian exporters to eurozone countries, as well as the moderate increase of costs related to utilization of EU funds will help for a certain, although modest, acceleration of the GDP growth in the current year”, commented Kristofor Pavlov, chief economist of UniCredit Bulbank.

Last year the growth of GDP reached 0.9%. All indicators measuring the economic activity saw a stable growth on a monthly basis in January 2014, whereas the indicators for the sentiments in the economy until February saw an improvement from their low levels. This is a sign of the gradual recovery of the real GDP at year start. The economic growth is due mainly to the good export figures and the utilization of EU funds. The recovery of the households sector has still not reached satisfactory levels.

The loss of work force reached 8 thousand people in the last quarter of last year compared to the same period of 2012. This happened after six consecutive quarters of positive change on an annual basis. In the context of a fast decrease of the population in the age group of 15-64 years, the ratio of work force to population (measuring the share of people who are employed or looking for employment) improved to 68.6% in the last quarter of 2013 compared to 67.9% a year earlier. Thus the indicator is already above its highest value from before the crisis in 2008.

The analysis of UniCredit Bulbank shows that the real disposable income of households, even if it is difficult to explain, was increasing by 7.7% on an annual basis in the last three months of last year. An increase is seen also with salaries – by 13%, pensions – by 10.7%, the welfare benefits for unemployment – by 53.5% and the other welfare payments – by 31.7%.

“The mixed data from the last few months make it difficult to formulate an accurate diagnosis for the local labor market”, further said Kristofor Pavlov. According to him, the labor market is stabilizing after a continuous and painful process of adjustment, which started in 2008 when the economy was hit by a series of external shocks.

The full analysis of the Bulgarian economy is available at the website of UniCredit Bulbank (in Bulgarian).

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