First signs of recession in Bulgaria

| updated on 3/23/20 11:52 PM
Photo: Shutterstock

Until a fortnight ago economic circles were talking of growth, of hiring more staff, of exports and imports, of prices and transport, of investments and of raising salaries. In the space of just10 days coronavirus changed all that. What everyone is talking about now is recession and shrinking production and consumption, new debts accumulated by enterprises and the entire state, an expected growth in unemployment, widespread bankruptcy, and forced closure of companies.

That is exactly what some of the foremost companies in this country have already done. The biggest military plant Arsenal in the town of Sopot, and biggest private employer with 9,500 workers and staff, has closed doors and placed them on leave. So have Bulgaria’s biggest coal mines from the Maritsa-Iztok complex, though they gave assurances that the coal-fired power plants will not have any problems and will have enough coal for years to come. 

Things are looking even bleaker in tourism, where bankruptcies of travel agencies and hotels are in the offing. The tourist sector accounts for around 14% of the GDP. The same fate awaits transport companies which are unable to carry out supplies because practically all borders in Europe are blocked.

Until recently domestic consumption was a principal engine of economic growth, reaching 3.5% last year, with exports accounting for a significant share of it. Now domestic consumption is impeded because of the restrictions in the functioning of stores and in the movement and gathering of people in one place. As to the problem in export, suffice it to say that Italy, the country hardest hit by COVID-19, is Bulgaria’s second biggest trading partner within the EU.

Here we can add the services sector, the automotive industry and trade. Over the past few months alone the sale of new cars in the country dropped by no less than 30%. Surprisingly, even online commerce has taken a downturn, with current sales standing at 30-40% of pre-crisis figures. Businesses are expected to encounter more problems, and, as President Rumen Radev warned, the economic and social crisis may turn into a humanitarian crisis for thousands of Bulgarians. Something recognized by Prime Minister Boyko Borissov as well, who started talking of a budget deficit of EUR 1.7 billion. Experts-MPs are predicting a drop in GDP of over EUR 2.5billion this year.

The authorities have been trying to take steps to cushion the effect of the crisis and rescue the people affected by it most. The government plans to cover, for a period of 3 months, 60% of the salaries of the workers and staff whose incomes have been affected by the state of emergency. The Bulgarian National Bank is looking after stability and liquidity in the banking sector with the help of a package of measures amounting to EUR 4.6 billion. However one provision of the State of Emergency Measures bill, adopted by parliament on Friday with lightning speed, enraged Bulgarian businesses. The measure in question envisages a price freeze at the level of the arithmetic mean for the past 3 months, and that, businesses say, is going to revive the black market. Something which even Finance Minister Vladislav Goranov agrees with. Taking heed of the arguments adduced by businessmen, President Rumen Radev imposed a partial veto on this bill, and PM Borissov said he expected parliament to make the necessary amendments to the bill.

Amidst these grave prospects, the outlook given by the Vienna Institute for International Economic Studies of a slight, but nevertheless growth of 1.4% for this year sounds comforting and encouraging, still Bulgarian experts have been drawing up apocalyptic scenarios of an economic recession bigger than the 1990s crisis, when the economy was reduced by more than 30% a year. The Bulgarian Finance Ministry set down a 3.4%  GDP growth rate for this year, but, obviously, it will not be reached. It remains to be seen how Bulgarian businesses will be able to cope with the severe trials lying ahead, and whether they will demonstrate the necessary maturity and adaptability to the new conditions.

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