Bulgaria: Solid growth despite messy politics
Owing to a robust recovery in consumption and exports, the Bulgarian economy expanded by 2.5% in 1Q21 versus the previous quarter and has almost recovered to pre-pandemic levels. We revise our 2021 GDP growth forecast from 4.1% to 5.4% but remain wary on the prolonged political instability
The flash release does contain some limited details on a few GDP items, though more details are due on 8 June. Compared to 4Q20, the expenditure side of GDP shows expansion in all items. Eye-catching is the 6.5% expansion in exports of goods and services as well as the robust 1.6% growth for total final consumption. This jibes with the latest industrial and retail data showing solid external demand and more consumption, as average wage growth starts to climb into the double-digit area again.
Translating into a -1.8% contraction versus 1Q20, the 1Q21 2.5% quarterly advance takes our 2021 GDP growth forecast to 5.4%. This still assumes relatively “normal” quarterly expansions in the coming quarters of around 1.0%, which we think is on the cautious side. Hence, risks for growth are still skewed to the upside.
As already mentioned, the black swan for 2021 might not be an eventual fourth or fifth wave of infections, but rather prolonged political instability. After three failed attempts to form a government, snap elections are scheduled for 11 July but the chances for a coalition to be formed have not improved substantially.
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