In the first quarter of 2024, the real GDP of the country is expected to increase on a chain basis at an accelerating rate, which is a prerequisite for forming a similar dynamic also in terms of the annual rate of change of indicator, is stated in the regular Economic Review of the Bulgarian National Bank (BNB), uploaded on the central bank's website.
The forecast was made on the basis of the composite economic activity indicator constructed by the BNB, specifies BTA.
The chain growth of the indicator in the quarter was mainly contributed by the data on the improvement of consumer confidence, the positioning of the global PMI index (supply managers' index, note row) above the neutral limit of 50 points, the increase in the indices of production in construction, retail trade and services (not related to trade) in real terms, as well as the increase in credit for households and companies, noted the central bank.
In the second and third quarters of 2024, real gross domestic product (GDP) is expected to continue to grow on both a chain and annual basis, supported mostly by domestic demand and assumptions of an improving outlook for the external search for Bulgarian goods and services.
In the fourth quarter of 2023, real GDP rose by 0.5 percent on a sequential basis (0.4 percent in the third quarter), while annual growth was reported at 1.8 percent. As a result of this dynamic, in total, for 2023, economic activity grew by 1.8 percent in real terms, the BNB recalls.
The current and capital account surplus of Bulgaria's balance of payments for the last 12 months as of January 2024 reached 1.6 percent of GDP compared to 1.3 percent of GDP as of December 2023, which was due to the transition of the current account from a deficit to a small surplus.
The balance on the financial account for the last 12 months as of January 2024 was negative as a result of the greater accumulation of liabilities to non-residents compared to the acquisition of foreign assets by Bulgarian residents. As a result of flows on the current, capital and financial accounts of the balance of payments, the country's gross international foreign exchange reserves for the last 12 months to January 2024 increased by 1.1 billion euros, the central bank reports.
In the first two months of 2024, the annual growth of deposits of non-financial enterprises continued to slow down, with a factor potentially influencing this dynamic being the continuing downward trend in nominal turnover in the industrial sector.
Preferences by households to maintain their spare funds in the form of deposits in the banking system, as well as the increase in labor income, continued to contribute to the relatively high growth of household deposits, which stood at 10.8 percent at the end of February . In the conditions of still low levels of interest rates on new time deposits of households in general for the banking system, the growth of deposits of this sector continued to be due almost entirely to overnight deposits, the BNB notes.
High liquidity and capitalization in the banking sector, as well as competition between banks limit the effects of the increased key interest rates in the Eurozone and the increase by the BNB of the required minimum reserves to 12 percent, effective from July 1, 2023, on the interest rates on newly granted loans in the household sector.
Annual growth in household credit accelerated to 17.1 percent in February 2024, driven largely by housing loans and to a lesser extent – consumer loans. Household credit demand continued to be supported by rising labor incomes and interest rate levels, which remained very low on housing loans. The growth of credit to non-financial enterprises amounted to 8 percent in February 2024, the analysis also states.
On a year-over-year basis in the fourth quarter of 2023, the labor force declined due to continued declines in the working-age population and outflows from the labor force, and the unemployment rate rose 0.4 percentage points to 4. 2 per cent.
National accounts data showed employment rose by 1.2 percent year-on-year, driven mostly by the services sector, and the country's labor shortage continued to widen and put upward pressure on wages in real terms despite the reported drop in labor productivity.
Annual inflation as measured by the Harmonized Index of Consumer Prices (HICP) continued to decelerate to 3.1 percent in March 2024. This dynamic was mainly driven by the manifestation of a base effect from the rapid rise in prices in food groups and base components in 2023, and to a lesser extent – from the cheapening of energy products and industrial goods.
Domestic factors that continued to exert pro-inflationary pressures were the strong growth rates of private consumption and unit labor costs. The highest positive contribution to headline inflation in March 2024 was made by services and goods and services with administratively determined prices and tobacco products, followed by food products.
The BNB forecasts that annual inflation will continue to decelerate in the second and third quarters of 2024, but the expected continuation of strong consumer demand and the increase in unit labor costs will continue to exert pro-inflationary pressure on prices, the BNB adds .