Bulgaria will end 2010 with negative GDP due to the Services Sector

Industry in Bulgaria will get out of the recession in the beginning of 2010 but GDP growth will remain a negative quantity throughout 2010, UniCredit Bulbank’s Chief Economist Christopher Pavlov prognosticated at a round table entitled “The Road to Getting out of the Recession for Southeast Europe – Challenges and Drivers”. The round table was moderated by Debora Revoltela who is in charge of strategic analyses of the financial sector for CEE in UniCredit Group.

The other participants in the round table, opened by UCB’s CEO Levon Hampartsumian, were united in their opinion that it is the corporate sector that will take the region out of the recession. “We can no longer rely on an FDI boom or a consumption boom that we saw in the last years. However, gradually Eastern Europe became the “producing hand” of the West and this will help the region benefit from the sooner than expected recovery of the economy of the Eurozone”, UniCredit Group’s economist Mateo Ferazzi summed up.

Hamparstumian also emphasized on the importance of the infrastructure development in the region not only in the form of highways, but also 21 century communications and technologies.

According to Pavlov, the Bulgarian economy will report a growth below the potential one for a longer period of time than the other developing markets in Europe because it was among the countries to participate most actively on the latest investment and consumption boom, where the domestic demand growth was financed through a fast increase of the deficit on the current account and foreign debt. “The fast increase of costs exerted considerable pressure on the existing resources in the economy, forcing prices up. Balloons emerged in relation to prices of real estate and of securities traded on the stock exchange. At the end of the day the overheating of the economy led to greater vulnerability of the private sector on the eve of Lehman Brothers collapse, which marked the beginning of the worst phase of the global financial and economic crisis”, Pavlov explained. With that in the background, despite the considerable drop in 2008 and 2009, the rebalancing of the Bulgarian economy seems to continue and we expect, although with diminishing pace, for the GDP to continue to shrink in the better part of 2010.

Nevertheless, the industry of this country will recover from the recession as soon as in the first half of 2010, Pavlov thinks. The main reason will be the recovery of the economy in the Eurozone, which will have a beneficial effect on export. In addition, industry will be supported also by the so called “reversal of the cycle of work in progress”, i.e. the companies will have to increase their production in order to fill up their stockpiles that were reduced as a result of the reduced consumption triggered of by the crisis in the last months.

The optimistic forecasts for the recovery of the industry, however, do not entail automatic recovery of the economic growth, Pavlov said. He explained that although industry will bring along leaving of the recession there are several secondary effects from the crisis which now come down on the economy. The combination of an increasing loss of jobs, decreasing real estate prices and immaterial loan growth affect negatively consumer costs and investments, and will keep down the GDP growth during 2010 below zero. UniCredit Group’s economists forecast that Bulgaria will close the year 2010 with a GDP growth of -2.5%.

Contact persons:

UniCredit Bulbank, Public Relations and Corporate Communications

Victoria Blajeva, tel: 02/9264 993, wjlj/ebwjepwbAvojdsfejuhspvq/ch

Ekaterina Ancheva, tel: 02/9264 963, flbufsjob/bodifwbAvojdsfejuhspvq/ch