Bulgarian economy expands in Q4 2015 but growth faces downside risks in 2016

Bulgaria's economy grew 0.7% q/q and 3% y/y in Q4, according to the second estimate. It was revised down by 0.1ppt from the initial flash estimate of 0.8% q/q and 3.1% y/y. On the demand side, consumption recovered strongly, growing 0.9% q/q and 2.7% y/y, as compared with 1% q/q and 1% y/y in Q3 2015. Moreover, investments came in positive territory after remaining in the negative territory for four consecutive quarters. The rebound in spending was mainly due to rise in government spending, reflecting the increased EU funds absorption before the closing of the programming period 2007-2013 by the end of 2016.

Growth in private spending was accelerated with the help of improving sentiment, increasing real wages, further growth in employment and declining energy prices. In Q4, unemployment fell to 7.9% of the labor force in Q4 2015, as compared with 8.3% in Q3. Also, net exports contributed positively to growth in Q4. Net exports slowed to 5.6% q/q and 4.2% y/y in Q4, whereas imports grew 3.9% q/q and 3.4% y/y.

The GDP growth for 2015 reached 3% y/y, the highest since 2008, up from 1.6% in 2014. For 2016, Bulgaria's economic growth is expected to be 2.6% as there are certain risks on the downside, stemming mainly from lower EU finds absorption reflecting the start of the new multi-annual EU budgeting program period and the requirement for fiscal consolidation. For 2016, consolidated government deficit target is set at 1%, as compared with 2015's 2.9%. The country requires speeding up structural reforms to accelerate living standards convergence with EU.