GDP during 2007
The National Statistical Institute announced the data about the gross domestic product (GDP) during 2007, which size is EUR 28 898.1 million in current prices. These numbers are preliminary and should be revised based on the annual information. In a similar manner was revised the data for 2006 (increase in the GDP by about EUR 138 million, which increased the base for comparison when calculation the growth for 2007) and for the first three quarters of 2007.
The growth of the GDP is a very important indicator for every economy. It defines to a large extent the economic freedom for the individuals. Many studies prove that the relation between the increase of the economic freedom and the growth rate of GDP is significant and positive, which means that reducing the size of the government, reducing the direct taxes and obstacles to the exchange and movement of capital, the privatization of part of the state companies, limiting the control on the setting of prices and wages as a whole lead to improved growth. Besides that an important step in this direction is the introduction of the currency board arrangement, which insures the stability of the lev and leads to significantly lower inflation rates.
The measurement of the GDP is done by using two independent methods: the production method and the method of final use. According to the first Gross Value Added (GVA) and adjustments are measured. The real growth of the GVA during the year is 6.3%, the most dynamic development is observed for the industry – 14% real growth, which is a record high for this indicator. The main engine is the increased productivity of the companies as a result of the accumulation of physical capital during the years after the beginning of reforms in 1997.
The real growth of value added in services during 2007 is 7.5%, which is a continuation of the positive trend in recent years. The sectors with the greatest contributions are the real estate operations and tourism, which logically attract the largest portion of direct foreign investments. The activity of the financial sector, which also shows significant growth, is reflected in the adjustments, which increase with 5.5%.
One of the main problems to realizing higher growth is the agricultural sector, where the reduction of production is drastic – 29.7% in real terms during 2007. Significant factor for this were the unfavorable meteorological conditions during the year, however the reasons for the high sensitivity to the weather conditions must be found in the insufficient investment in the sector. The solution, however, is not in the subsidies, since through them the efforts of the farmers are redirected towards getting more funding from non market sources, instead of improving the effectiveness of the production and improved competitiveness.
The real growth of the investment, expressed through the gross fixed capital formation reached 21.7%, which leads to increasing their share in the GDP to 29.8%. This is a prerequisite for increased growth, in the case when the decisions prove to be right. The second alternative is that non productive investments have been made, stimulated by the high inflow of capital and increased money stock, which is not covered by goods and services. The result from that is the growth of demand, which leads to inflation, increased consumption and imports. The investments, however, have decelerated their growth during the year, which combined with the unfavorable global situation, related to the mortgage markets, means that the growth of the economy during the next year could possibly be reduced.
The final consumption shows a moderate rate of growth of 4.9% in real terms, while the imports grow by 9.9% and thus are a bit greater than the relative share of consumption in the GDP. The growth of exports is again behind that of the imports, which leads to increase in the trade balance deficit. The degree of openness of the economy also increases, where the foreign trade reaches 147.8% of the GDP, which is an indicator of the increased integration of Bulgaria with the European Union and its neighboring countries.
The preliminary data about the Gross Domestic Product indicate positive development during 2007. Regardless of the crisis in the agricultural sector, the economy managed to keep the relatively high rate of the previous years. The reforms in public spending in the area of education, healthcare and the state administration could affect positively the growth potential by contributing significantly to the effective allocation of budget funds. The subsidies for the agricultural sector will not improve the situation and the crisis in it will continue. The real growth rate in 2008 would be around 6%, while the probability for acceleration is low.
