- Institutions don't bet on a recession in their forecasts for 2023
- New bank customers will face a significantly higher price for financing their projects or purchasing a property
- Businesses now seem more focused on staff shortages and the need to increase salaries
This year, a third of the global economy will be in recession, including half of Europe. This means 2023 will be more difficult than 2022, the International Monetary Fund warned recently. Forecasts of an economic slowdown are nothing new, and it was expected to take place even earlier. When major economies lose steam, Bulgaria can do nothing but feel the impact. The country easily imports crises, as it is an open economy with a small arsenal for defence. However, for now, none of the institutions here is betting on a recession in their forecasts. They expect the economy to stagnate this year and prices to continue to rise, albeit at a slower pace compared to 2022. However, the shock of the war in Ukraine and the sanctions against Russia was milder than originally forecast, and rising interest rates aimed at slowing inflation are certainly working, albeit belatedly.
A forecast with many unknowns
Nailing down an accurate forecast for the evolution of the economy will be difficult, as there are many unknowns. For example, for now, most analysts expect the recession in the eurozone to be short and shallow, but this could change depending on the development of the war in Ukraine. Any escalation could lead to new problems with the supply of important raw materials and a new increase in the prices of energy sources, or an outflow of tourists in summer due to Bulgaria's proximity to the conflict. Also, bank customers will face an increase in interest rates this year. For now, the plans of financial institutions in Bulgaria are for this to happen smoothly and in very small steps. But inevitably, new bank customers will face a significantly higher price for financing their projects or for purchasing a property.
Forecasts say inflation has already passed its peak values and will begin to slow down slightly. In November, the statistical office, NSI, reported a mild decrease in the consumer price index for the second month in a row, to 16.9% on an annual basis. However, the lower value comes mainly from gas and fuel, whose prices remain volatile on world markets. Prices of almost all product groups that include food continue to rise at an even faster rate. This is likely to shrink consumption despite continued growth in wages and pensions. For the third quarter of last year, for example, Eurostat reported that labor costs in Bulgaria grew at the highest rate in the EU, by 16% on an annual basis, compared to an average rise of 3.4% in the Union.
The protracted political crisis in the country also carries a risk, because it has blocked the implementation of any reforms for almost two years. On the other hand, the election mood in which all political parties operate since 2020 pushes them towards populist measures with which they try to compensate for inflation. But the compensations have a boomerang effect, as increased incomes fuel increased consumption, which in general pushes prices further up.
Good for now
Most statistical indicators as of November 2022 still do not point to a crisis - business climate is improving, exports are growing, and industrial production is also on the rise. In addition, there is sustainable employment, wage growth, and still active lending.
The business polls that most employers' organizations in Bulgaria conducted among their members at the end of 2022 showed that nearly a third of managers are optimistic about their companies' earnings in 2023. The percentage of pessimists has slightly increased compared to the level a year earlier, but in general, businesses seems to be more concerned about staff shortages and the need to increase wages rather than about a possible crisis.
Still, fears of a looming slowdown this winter in the world's major economies remain. On the other hand, many of them have begun to report a slowdown in inflation. However, this process is still slow and fragile, and a new energy supply problem or a shortage of an important raw material can quickly reverse the trend. If there is one certain thing, it is the inevitable rise in interest rates. However, Bulgaria feels this increase a way weaker and it affects businesses the most.