A few days ago, the National Statistical Institute published express data on GDP for the third quarter, which pleasantly surprised with growth of 1.6% from a year earlier. The economy's growth rate was higher than most expected and makes achieving the government's updated 2014 growth forecast of 1.5% achievable. Year-to-date seasonally adjusted figures for the first three quarters show year-on-year growth of 1.5%, 1.8% and 1.6% respectively.
Source: NSI
The growth of the economy in the third quarter it was entirely due to domestic investments and consumption, while after the minimal growth of exports in the previous two quarters, a decline in external sales was already reported in the third. Investments (gross formation of fixed capital) started to recover from the crisis as early as the last quarter of 2012, but the growth rate only strengthened from the end of last year to 4-5% per year. The third quarter of 2014 saw growth of 4.2% on an annual basis. The faster growth probably reflects the accelerated absorption of European funds since 2013, since a large part of the projects are precisely for the construction of engineering objects.
Final consumption, in turn, grew by 1.4% in the third quarter after positive growth in the first two quarters, which was due both to increased government spending this year, as well as individual consumption. The latter has grown steadily this year, with part of the explanation lying in increased social payments in this year's budget and increased pensions from April last year (which contributed to annual final consumption growth of 3.3% in the first quarter of 2014) and from July year
Probably a bigger contributor to consumption growth this year, however, is the serious stir of the labor market, where for the first time since the beginning of the crisis we have witnessed significant net job creation. At the same time, in the third quarter, not only the number of employed people continues to grow seriously (by 49,000 people) compared to a year earlier, but the rate of increase also accelerates compared to the first half of the year. By comparison, 39,100 and 39,600 new jobs were created in the first and second quarters of 2014, respectively, compared to the same period in 2013. The explanation behind the stronger employment growth in the third quarter can be found in stronger creation on jobs in seasonal industries such as tourism and agriculture. The tourist season, based on advance bookings, was expected to be strong this year, which may have prompted managers to hire more labour. Ultimately, however, the results were disappointing, including the negative effect of prolonged rainfall and flooding, as well as the crisis in Ukraine, which reduced tourists from there. NSI data shows a smaller inflow of tourists this summer, and representatives of the sector share that their financial results are worse this year.
Perhaps it is worth noting here that while NSI's quarterly labor force data (which is a sample survey) shows steady employment growth this year, monthly employment data (based on declared contracts) shows steady decline, except for the month of July. The data on the employed do not include the self-employed and those working on civil, copyright, etc. under. contracts. Still, however, it is strange that there are none of the new 40-50 thousand jobs this year among those employed in labor and service relations, which suggests either a sharp growth of the shadow economy in labor relations this year, or a low quality/gaps in labor market statistics. By the way, AIC surveys on the gray economy show its continued contraction this year.
Another factor that has a positive impact on household consumption, is the ongoing deflation on an annual basis for more than a year now. Average annual deflation for the last 12 months to September was -1.6%. It is very likely that this trend of falling prices will be interrupted in October due to the increase in electricity prices for the regulated market (households and small businesses) by about 10%, which, apart from its direct effect, will automatically affect a number of other prices. Accordingly, final consumption in the last quarter will most likely be more conservative.
Overall, the performance of economy this year is better than the previous one despite political instability and another snap election in October. The export performance is disappointing, especially given the fact that a new EU recession has been avoided for now. At the same time, the best news comes from the labor market, which has traditionally been the slowest to respond to economic recovery and is another sign of the relatively healthy state of the economy right now. Given all this, our earlier forecasts for the growth of the Bulgarian economy of 1.2-1.3% this year seem too pessimistic, even if some slowdown in growth in the last quarter is taken into account. A more realistic forecast would see growth of around 1.5-1.6% this year, which is actually also written into the government's updated 2014 macro framework.
Source: Ime.bg