"Will there be a sustained price decline, is there a real estate market bubble, and are investments in the economy limited? Why is entrepreneurial initiative weak in Bulgaria?" These are some of the questions economists and financiers are attempting to answer in their concise analyses. Capital Weekly has traditionally invited them to speak on the problems or trends they are observing.
Another topic is related to the EU's push for more independent and green energy production and how Bulgaria will cope with these new requirements. Taking into account the volatile nature of economic forecasts, a significant concern for Bulgaria and the economies in the region is the sluggish economic performance expected this year in Germany which is a key trading partner of Central and Eastern European nations.
Here is what economists think:
Rise in energy and commodity prices is over
Lachezar Bogdanov, Chief Economist at Sofia-based Institute for Market Economics (IME)
After hitting a bottom due to the pandemic, prices of energy, food, metals, and nearly all other commodities began to rise significantly. Then, Russia launched a war against Ukraine, further complicating the situation, especially for the natural gas market and the closely related electricity market in Europe.
Data from the International Monetary Fund indicate that this cycle of price increases has come to an end. After reaching a peak, which for most commodities was in August 2022), prices have declined noticeably. Towards the end of 2023, a significant portion of the indices stood below their levels of November 2021. By November 2023, the overall commodities index was down by 10%, the energy index fell by 19%, while the non-energy resource index remained flat. Prices of key commodities show an even deeper decline - coal by 23%, copper and aluminum by 16%, zinc by 23%, non-cereal foods by 21%, wheat by 32%, and sunflower oil by 34%. Benchmark Brent crude oil saw a slight increase of 2%. In Europe, both electricity and natural gas were cheaper in November 2023 than in the autumn of 2021.
Foreign investment: manufacturing overtakes real estate
Georgi Angelov, Senior Economist, Open Society Institute
Over the last 15 years, the sector with the highest volume of foreign investment in Bulgaria has been 'Real Estate Operations'. For instance, a decade ago, foreign investments in real estate were 50% higher than in manufacturing. This changed in mid-2023. According to Bulgarian National Bank data as of June 2023, the real estate sector was dethroned from the top spot in terms of foreign investments. The 'Manufacturing Industry' sector took first place with foreign investments amounting to 11.7 billion euro, followed by the 'Real Estate' sector with 11.5 billion euro.
The change of the leader in terms of foreign investments is an important trend that increases the potential for future growth, as Bulgaria's real estate and market-serving service sectors have limited capacity for growth and investment due to the small size of the local market.
Market trend diminishes the role of coal in the electricity mix
Kaloyan Staykov, Chief Economist at the Energy Management Institute
Production of electricity from lignite coal is steadily decreasing. The decline was temporarily interrupted from the summer of 2021 to the autumn of 2022 due to various issues with natural gas deliveries. This trend is not something new but rather the ultimate effect of the EU's energy policy that is focused on strengthening the role of the carbon market, merging national electricity markets into a common European market, increasing interconnection capacity, new investments in generating capacity (mainly renewables), decentralized production, and more. The longer Bulgaria closes its eyes to this trend, the longer coal-fired power plants will continue to operate as before, accumulating losses and delaying the adoption of new solutions to shift away from coal.
The use of coal-fired power plants in a regulated market is not only wrong but also a relic of the past. New solutions are needed to address the new challenges, and the longer they are postponed, the more difficult and expensive they will become.
Bulgaria faces entrepreneurship challenges
Plamen Nenov, Associate Professor of Economics at BI Norwegian Business School and Researcher at the Norwegian Central Bank
I decided to update the chart from my previous analysis for 'Capital Weekly', which focused on the entrepreneurship crisis in Bulgaria, to track the evolution of this issue in recent years. The decline in newly emerging micro-businesses with 1 to 4 employees in 2019 is particularly evident. This decline predates the COVID-19 pandemic and indicates serious structural problems in the process of creating new businesses in Bulgaria. There were nearly 100 companies with 1 to 4 employees in 2019 and there were 52 in 2021, according to Eurostat.
What are these structural problems? My research on entrepreneurship suggests that the declining number of new businesses in Bulgaria is most likely due to the interaction between two factors: the need for financing, specifically equity capital, among new entrepreneurs, and their perceptions of the overall economic outlook, including investment risk. These factors necessitate a combination of economic policies that, on one hand, provide access to capital financing and, on the other hand, reduce risks by increasing economic predictability.
Eastern European economies still dependent on Germany
S&P Global Ratings
If the weakening of economic indicators in the eurozone, especially in Germany, deepens and lasts longer than expected, the medium-term growth prospects in Central and Eastern Europe (CEE) will be affected. While CEE economies are less dependent on Germany than they were 20 years ago, the country remains the largest export market for the region, primarily due to the deep integration of CEE production into the supply chains of the German automotive industry. Regional growth prospects can suffer even more if Germany's problems turn out to be structural and persistent, reflecting continuously high energy costs, technological changes in the automotive industry, weak demographics, and inadequate investments. This weaker growth could put pressure on CEE's public finances at a time when the costs of government debt financing are at multi-year highs, the global ratings agency said in its analysis of the risks facing the CEE region in 2024.
"Will there be a sustained price decline, is there a real estate market bubble, and are investments in the economy limited? Why is entrepreneurial initiative weak in Bulgaria?" These are some of the questions economists and financiers are attempting to answer in their concise analyses. Capital Weekly has traditionally invited them to speak on the problems or trends they are observing.
Another topic is related to the EU's push for more independent and green energy production and how Bulgaria will cope with these new requirements. Taking into account the volatile nature of economic forecasts, a significant concern for Bulgaria and the economies in the region is the sluggish economic performance expected this year in Germany which is a key trading partner of Central and Eastern European nations.
