Bulgaria’s record growth

SOFIA – A lending boom helped push Bulgaria’s economy to record growth in 2004, data showed yesterday, but the Balkan state’s rate of convergence with the EU still lagged behind those of neighboring accession candidates. Bulgaria’s gross domestic product (GDP) expanded by a real 5.6 percent in 2004, compared with a revised 4.5 percent a year earlier, the statistics office said. For the fourth quarter alone, growth was 6.2 percent. The surge was mainly driven by services, which showed explosive growth following a 50 percent spike in commercial loans last year, said Antoaneta Hristova, a statistician in charge of national accounts. «Trade had the largest growth in the sector, as well as financial services, credit and insurance, mainly because banks developed credit activities,» she said. The EU candidate state’s commercial banks have embarked on a massive credit expansion, offering free televisions, stereos and other gifts and incentives if clients take out relatively cheap mortgages and consumer loans. Imports have surged, driving the current account gap wider and drawing IMF warnings of possible economic overheating. Full-year imports in 2004 jumped by 14.1 percent from a year earlier, outpacing export growth of just 13.1 percent. In separate data yesterday, the central bank said Bulgaria’s current account imbalance – the country’s most closely watched economic indicator – widened to 1.4 percent of GDP in January, from 1.2 percent in the same month in 2004. However, analysts said the robust growth painted a positive picture and that there were no immediate worries of overheating. «Basically on the whole, the situation is unchanged. The economy is doing very well,» said Dresdner Kleinwort Wasserstein analyst Ivailo Vesselinov. Lagging in convergence Bulgaria is one of the poorest countries of all EU members and candidates, ahead only of Turkey, with per capita GDP amounting to just 30 percent of the EU average. Despite its strong growth last year, it stayed sandwiched between Romania and Turkey second to last in GDP per capita but lagged those countries’ growth rates of 8.3 and 9.9 percent respectively. «When compared to its neighbors, Bulgaria’s growth of 5.6 percent isn’t that bright,» said CSFB analyst Berna Bayazitoglu. «It’s basically converging with the EU at a slower rate.» Bayazitoglu said the slower growth could possibly be tied to the currency board which pegs Bulgaria’s lev to the buoyant euro, and may be making the country less competitive than neighbors with more convertible units. Its private sector grew by 7.5 percent year-on-year and created 66.3 percent of Bulgaria’s GDP, while the public sector, which made up 20.4 percent of GDP, shrank by 0.6 percent. Fixed capital creation rose by 12.0 percent. The International Monetary Fund expects Bulgaria’s economy to grow by 5.5 percent in 2005, but analysts said global factors might make that forecast overly optimistic. «We expect a slight slowdown across the region, not only in Eastern, but also in Central Europe,» said Vesselinov.

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