European Recession Is Not Going To Pass Us By


Statistical data for the Bulgarian economy, which were released in the last few weeks, are more and more concerning:

1/ Maybe the most concerning of them all, are those concerning the foreign trade for the first 2 months of the year, showing decline in the exports by 6,1% on an annual basis (10% in January and another 1,8% in February). It’s important to be mentioned, that the lower values might be a result of the higher basis at the beginning of 2011 and the extremely cold weather in the beginning of the year. Although, we can see that our exports to the EU is falling (as expected), as well as the one to the countries outside the EU (less expected). It’s clear, that this year the exports, which did their job helping the country to get out of the recession, are probably are not going to be the recovery engine they used to be. In a best case scenario, they will grow a bit or stagnate.

Another question is whether the domestic demand could take on its role as an "engine" of the economy. According to some analysts – yes (EU, IMF), but we remain rather skeptical, taking into account the continuing growth of citizens' savings in the banks, loss of jobs and unemployment, and ongoing contraction in retail.

2/ The reduction in industrial output for a third consecutive month in February (on annual basis). The one to be blamed for this decline was the manufacturing industry, where the drop each month, from December to February, was a double-digit – no surprise, given that it consist the main export industries.

3/ There’s nothing to be said about the construction sector – as people say, either good things for the dead, or nothing at all. The sector remains in the red zone in February, i.e. continues to shrink for a fourth consecutive year, never really went out of the crisis, in which it entered in the beginning of 2009. It should be noted, that in January the sector managed to register its first growth of 1.1% percent annually (thanks entirely to civil / engineering construction), but this increase was quickly overshadowed by a new decline of 10% in February.

Generally, one can speculate that the poor performance in February was a result of the extremely cold weather this year and that the sector sent out a signal for a starting recovery in January, but such an optimistic interpretation can be confirmed or rejected only after seeing the data for the coming months. Given the large drop in recent years (meaning very low base), the expectations for government construction projects, created in order to utilize the European funds this year, could  lead to some growth in 2012. This, however, will be extremely insufficient to compensate for the decline in sales and an expected overall drop in the industry.

4/ Retail continue to shrink during the first two months of 2012. Indeed, except for a short period of time (between March and May 2011), when retail (excluding sales of cars and motorcycles) marked a very small growth on annual basis, this indicator represents a steady decrease in domestic consumption since the beginning of 2009.

5/ Data on visits of foreign tourists in February show nothing to be happy about – about 3% annual decrease in the number of tourists, after an year and a half of a steady growth. These numbers are against the expectations, that the excellent conditions for skiing in February, when the country was buried in snow, will attract many foreign tourists. Unfortunately, because of the implementation of a new methodology for calculating the tourism revenues, the data for the early 2012 are not comparable with those from the last year.

6/ The only optimistic data came from the recent inquiries of the National Statistical Institute, concerning the business climate in March, where we have a 2,3% increase  from the previous month. This increase, however, cannot compensate for the deterioration of the business climate from the last months of 2011. In the same time, the complex indicator for the business climate remains far below its long-term average since the end of 2008. It must not be forgotten, that the business climate data contain much noise and have low predictive power (for comment on the issue see here).

Overall, the data for the first months in 2012 show that Bulgaria will not be passed by the recession, which started at the end of 2011 in the EU. It seems increasingly likely, that we are also going to be affected by the economic contraction in the first quarter of 2012, which may continue in the coming quarters. The impact of the European recession is already visible in the data, concerning our exports and industrial production. Meanwhile, domestic consumption and the sector of construction continue to shrink, i.e. they have not recovered from the crisis, which started in early 2009 and currently we can’t rely on them to play their role as an economic drivers. Given all this, it is right time for the government to go out with an updated forecast for the growth this year and start to manage the budget according to the more realistic scenario of a recession in our country.