Economic Policy Review ISSN 1313 - 0544

GDP Growth and the Problems During 2008

Author: Petar Ganev / 09.04.2009
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The National Statistics Institute (NSI) published the data about the GDP for the last year. During 2008 GDP of the country reached 66 728 million levs, which means that in real terms, compared to 2007, the increase is by 6 per cent. The data shows that the GDP per capita is 8 712 levs.

It is interesting to see to what degree this data was expected for Bulgaria and on top of that from the official assumptions of the Government. For that purpose it is not necessary to look through the statements in the media in the recent months, but we have to simply check what was written in the budget reports during the recent years. When at the end of 2006 the Budget for 2007 was passed the forecast for 2008 had been only 55 671 million levs. Apparently compared to that time we have over fulfilled all expectations. At the end of 2007, during the discussion of Budget 2008, the forecast for the GDP which was passed was 61 711 million levs, in other words again much lower then the real value. Finally we came to the forecast during the discussion of Budget 2009, namely 66 400 million levs, which is quite closer to the real number (again lower), but it reflects on exact estimates of already available data from the passed year, than some accurate forecast.

This short retrospect gives us a clear idea about the possibilities for accurately forecasted anything in the world of economics, even if it is fundamental parameter as GDP. Naturally we could outline various trends and respectively put forward positive or negative expectations, but engaging with specific numbers, regardless of how much it is needed for the budget calculations, for example, remains highly unthankful undertaking. This is even truer under the conditions of a crisis, when the things do not follow their "natural" order and often could be brilliantly explained and described only after they have taken place; again we are talking more about accurate assessments rather than accurate forecasts.  

The data published about 2008 sounds encouraging based on the negative effects of the global financial crisis, but we still have to take into account the fact that all these processes will show their effect at a later stage. The problems our economy is facing at the end of 2008 which continue at present most likely will affect the data even for the first quarter of 2009. The high level of growth of the GDP, which we observed during the last few years, most likely would not take place during 2009, but this to a large extent would depend on how the crisis would develop, which at least at present is highly unclear - due to either external factors (whether or not the anti-crisis plans of the US and Europe would be working) or internal factors (what would happen at the elections and whether or not the Government is going to spend too much). A key period may prove to be second half of 2009, when depending on the development of these factors, our economy may face new problems or begin to return back to its good form.

Actually the development of the main economic indicators in Bulgaria during the last few months has a very instructive character to all who place the macro-economic problems ahead of those to the separate individual. Only a year ago, when the businesses were growing in multiples, the people were into position to choose their place of work, their incomes were growing and no one was thinking of freezing salaries, "experts" were talking a lot about the "macro-economic" problems as high inflation and the deficit of the current account.  Now we have a low inflation and reduced deficit. Are we in a better position?

The inflation (a month against the same month of the previous year) was reduced from more than 15% in the middle of 2008, to only 6% during February 2009. They even started talking about meeting the inflation criteria for the euro adoption according to the Maastricht treaty at the end of the year. The foreign trade is shrinking, which is reducing also the trade deficit. The foreign trade balance for December 2008 is negative by 1 262 million levs, while during December 2007 it was 1 580 million levs in other words the reduction of the imports is greater than the reduction of the exports.

These two parameters look better now but this is a result from negative factors. The decreased consumption and the fewer foreign investments lead to the reduction of inflation and the deficit of the current account. This is indicating that the processes in the economy are interrelated and could not be discussed independently of each other and to be shown as problems by themselves, outside the meaning of everything else.  The inflation and the deficit of the current account were to a large extend falsely accused of being problems, while in reality resulted from positive factors such as the record high foreign investment and very rapid growth of the economy (including a significant growth of the personal incomes). All of these could be seen more clearly now, when the situation is changing and we are facing completely different conditions.