The Bulgarian economy will continue sinking in 2010. The decrease of the GDP will be of 1%, according to the Agency for Economic Analysis and Forecasts.  For 2009 the expectations are of a significant  decrease of the GDP of 6.3%.  Bulgaria will be in recession for two consecutive years.  The decrease of the investments and the retail index will continue in 2010.  The expenses in Bulgaria’s budget will not increase in order to avoid deficit.  The major reason for this is the world wide recession. Although there have been signs for upcoming end to the recession in the USA, the risks for the world and the European economy are still there.

The slowing down of the economies of Bulgaria’s major trading partners has led to shrinking of Bulgaria’s export. The export of goods has decreased by 30,7% in the first five months of this year and it is expected that the decrease will be 10,5% on an annual basis. This has its effect on the transport and freight. As result the total volume of the export will shrink by 12,3%. The limited crediting and the slow increase of the personal incomes has led to a decrease in the investments and the sales in the country itself. The expectations are that in 2009 the spending of the average household will shrink by 4.5% and of the government by 3%.

In the following years the domestic demand, which has been generating mostly by the foreign investments, will be hard to resume the growth of the  Bulgarian economy to the levels of the last years.  That is why the recuperation of the economy is expected to materialise through the export. Having in mind the current world wide tendencies, this will not happen in 2010.  To the contrary, the export will continue decreasing and the expectations are that it will shrink by 3,8% next year.  That is why the forecast is for economic decrease of 1% in 2010. This will be accompanied by relatively low inflation about 2,2%.

Bronwen Maddox: World Briefing, The Times

The crisis in Central and Eastern Europe has been triggered by the world’s financial turmoil. But the European Union was already set for an unpleasant showdown between its older members and its newer ones. Any recession — never mind one as acute as this — would have driven home the point that the east wants more than voters in the west want to pay.

The leaders of the first to join the EU club never wanted to admit, though, that the expectations of the newcomers were bound to be dashed. They didn’t want to be thought to be condemning them to a second-class wing of Europe. Nor did they want to spell out to voters how big the bill might be — and how funds might be diverted from their own countries to meet it. The blunt truth is that the newcomers’ hopes of becoming Spain, or the Irish Republic — poor countries transformed in a decade or so by the EU — were never realistic. Spain and Ireland joined a club of a few rich countries, and their own people’s income was about two thirds of the average. In contrast, former communist countries joined a loose, large club only half of which was wealthy in any sense. Their people were comparatively far poorer than the Spanish and Irish. The magical transformation was never going to happen.

The oddity now is that this crisis — one that threatens the stability of banks across Europe and might cause some eastern governments to default on debt — creates pressure for Western Europe to help. It won’t want to. But the intertwined finances give the east a case that the west can’t afford to stand back.

The EU’s decision five years ago to take in eight former communist countries, plus Cyprus and Malta, was one of the most generous gestures it has made. The spirit was admirable. But the idealism glossed over the difficulties, particularly on the economic side. The new members made big changes before they joined — but less so afterwards. Romania and Bulgaria, joining in 2007, have rubbed in the point that the EU has few sanctions if countries renege on reform. Romania, again, and Hungary, are now struggling with heavy debt because of reluctance to reform state industries and benefits. Others, such as Estonia, the Czech Republic and Poland, have better claim to be unlucky casualties of the collapse of export markets. Even there, debts were casually taken on in Euros while the income to meet them was in national currency, now sliding. Leaders and their people wanted to act as if they were already as rich as the rest of Europe, without income to match.

Even before this crisis the EU bill for helping these countries was large. A European Commission report last month (“Five years of an enlarged EU”) notes that in 2007 the new states received a fifth of the €99 billion that the EU gives to countries. That is set to rise between 2007 and 2013 to 35 per cent. The report blithely asserts that this “cannot be regarded as an unbearable burden” by old member states as it is only 0.2 per cent of their gross domestic product. The old members may not see it that way. To get the east out of this crisis the bill would have to be even larger, if only to rescue the banks from foreign currency loans.

There is a strong case to be made for the rescue. But it can’t be made in the airy tone in which the Commission has written its assessments of enlargement, which makes taboo any suggestion that the move was risky or expensive or overoptimistic in what it led the newcomers to expect. It was all of these. It was also worth doing.

The only argument which will now persuade Western European voters that they should pay even more is that, otherwise, Europe faces dangerous disintegration. For once, though, that kind of alarmist talk is justified.

In the last years the bank credits have been the driving force of the Bulgarian economy. Now the credit flow has dried up, the money from the gray economy has become the majour factor.

Only credits to the amount of 33.6 million levs have been lent by the banks to Bulgarian businesses in December 2008. In comparison, the average amount of the business credits for 2008 is 626.9 million levs.

Many companies have been experiencing cash flow problems and they can not pay their expenses. The bad debt has increased and some analysts expect 30% of the companies in the country to go bankrupt. Others are more moderate in their expectations and do not expect a total collapse.

The construction industry is in a very bad state, despite the opinion of the analysts. The need for fresh cash is so serious that some of the companies have switched to barter deals. They offer their business partners apartments and office space instead of cash.  The problem of many developers is that they have started several projects at the same time and have relied on off-plan purchases. However, once the credit policy of the banks became more strict, the off-plan purchases have stopped.  As result, many investors had to freeze their projects, some of them stopped paying their subcontractors and suppliers. The banks have ignored the whole of the construction industry and now lend money only to companies who also work in another field of business, which can guarantee the repayment of the loans. There is still no official information about the level of debt in the construction industry but it is expected to be quite serious.

Bulgaria alongside Romania, will experience a shock because of the global slow down of the world economy according to analysts. There will be job cuts both in these countries, as well as in Spain, Italy and the U.K. where many Bulgarians and Romanians work to support their families back home. The lack of access to foreign capital will be the major problem for the the East-European economies next year according to BNP Paribas. The huge foreign disbalance must be corrected now to avoid problems in the future. The expectation is that Romanian economy will shrink by 0.6%, while Bulgarian economy will shrink by 1,2%. The official unemployment figures are on the increase and has already reached 5.9% in Bulgaria and 4% in Romania in October 2008. In the last six years, unemployment has been steadily decreasing due to the emigration of work force to the West. The return of many of the this guest workers back home will combine with the inability of those who remain abroad to support their families in their homeland. In Bulgaria the money sent from workers abroad used to amount to 5% of the GDP according to the International Organisation for Migration.

The collapse of the banks in the West is a serious warning for the future of Bulgarian banks. In the last three-four years, the Bulgarian banks enjoyed enormous profit and record growth levels but the world financial crisis is going to put an end to this.

Almost all Bulgarian banks have started to change their development policy following September, 14.  Almost all plans for the opening of new branches have been frozen. The major problem in the banking sector is the lack of fresh money. The foreign financing has stopped and now all Bulgarian banks have focused on the domestic market to keep their growth. It is expected that a within a year a real war to attract deposits of new clients will unleash and the perks for the clients will include holidays abroad and golden watches.

However the biggest loser will be the business and the ordinary consumer. Many banks have changed their policy to attract new clients and now focus on keep the reliable clients with a good track record. It will be very difficult to get a credit if you are a new company. The price of this will be high for the Bulgarian economy – so far the banks have been the major force of the economic growth.

According to professor Minasian, it is likely that the Bulgarian economy might suffer a mini-recession in 2009 similar to the one in the much bigger economies, but in a much smaller scale.  There are investments in the Bulgarian economy and they lead to an increase of the total demand, however, the increase of the GDP is not that fast the levels remain modest. The only logical conclusion is that the investments do not generate the necessary economic growth as they are not in production but in properties.