Wednesday, March 12, 2008

Bulgaria Inflation February 2008 and Q4 2007 GDP

Bulgarian inflation reached 13.2 percent on the year in February, the government said Wednesday.The rate in January was 12.5 percent.

Food prices increased by 1.7 percent in February over January, with prices of nonfood items rising 0.8 percent, and services up 0.2 percent, the National Statistics Institute said.

The Bulgarian harmonized index of consumer prices, used by the European Central Bank, rose by 1 percent in February over January, and by 12.2 percent compared to February 2007.




On another front Bulgaria's economic growth accelerated in the fourth quarter driven by record levels of investment, construction and tourism in the first year of European Union membership. Bulgaria's economy expanded at an annual rate of 6.9 percent, up from a revised 4.9 percent during the previous three months, according to data released by the statistics office.



Bulgaria, which is the EU's poorest member with per-capita gross domestic product of just 37 percent of the EU average, is counting on investment and accelerating growth to help raise living standards. However dependence on food imports and the high global prices of grain and oil prices have fueled inflation and lead to a widening trade deficit. Agricultural output slid by 43% in the third quarter, floowing a drought and then heavy rain storms which destroyed vast areas of crops in the summer. Annual agricultural output declined a record 29.7 percent in 2007, greatly influenced by the third quarter performance and by a 36.4 percent year on year slump in the fourth quarter.



For whole year 2007 the Bulgarian economy grew by 6.2 percent, following revised growth of 6.3 percent in 2006.

Record foreign investment of almost $10 billion spurred the construction of hotels, offices and residential buildings, the data showed. Industry rose 18.2 percent, driven by a 17 percent growth in construction and 15 percent growth in manufacturing, as Western car makers moved production to Bulgaria to take advantage of low taxes and cheap labor.


Growth in gross fixed capital formation rose 14 percent, following a 19.7 percent rise in the third quarter. End-user consumption growth rose to 4.5 percent from 4.3 percent, of which individual consumption slowed to 3.4 percent from 4.9 percent, while public consumption was up 13.3 percent after a 2.5 percent decline in the previous quarter.






Exports rose 6 percent in the fourth quarter, after a 5.4 percent increase in the previous three months, while import growth slowed to 5.7 percent after a 9.3 percent increase in the previous quarter.


Posted by Edward Hugh at 3:25 PM

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Spotlight On Hungary

Welcome to the Eastern Europe Economy Watch Blog. By clicking the older posts link (at the foot of the page) you will be able to leaf through the normal chronological blog posts. But first we have our country of the month feature where we would like to present some charts which provide background data we hope will help the first time reader better assess and get to grips with the general argument being presented on the blog. Below you will find charts for Hungarian male life expectancy, fertility, quarterly GDP growth, inflation, household demand, retail sales, and import and exports growth. Please click on thumbnails for better viewing.

On the left you can see a chart for Hungarian male life expectancy, and on the right there is one showing Hungary's population development. Just why such factors are important, and need to be taken into account along with more standard macro economic data in order to understand what is currently happening in Hungary and what might subsequently spread across Central and

Eastern Europe can be discovered by reading my Hungary analysis:Just Why Is Hungary So Different From the Rest of the EU 10?The basic arguments being advanced here are that long term fertility and life expectancy do matter, since in the long run they condition the labour force and consumption patterns, and with these inflation and internal demand.



Above left you can see Hungarian ferility, and above right the evolution of the population median age, which are also key parameters, since they influence saving and consumption, and with these internal demand growth. On either side here you can see charts for inflationand quarterly GDP.


Next on the left we have a chart for recent movements in private internal consumption (which shows us the state of internal immediate consumption demand) while on the right we can see changes in constuction activity, (which serve as a nice proxy for fixed capital formation). Finally the chart on the bottom left shows a comparison of Hungary's trade balance 2006 and 2007,


while on the right you can see the evolution in non-forint mortgages for immediate consumption purposes. Arguably these are all the data points you need to understand my lengthy post on why we face a possible recession in Hungary, and why post-recession Hungary may be converted into yet another export dependent economy.


2008 Forecasts: The OECD in December revised their 2007 Hungary forecast down to 1.8%, and 2008 to 2.6%. These numbers are very hard to accept. I will be very surprised if we see calendar year 2000 as high as 1.8%, but more to the point 2.6% seems to be assuming a strong rebound, an assumption for which there is no real substantive evidence. In particular even to get what growth we have been getting in 2007 the Hungarian govenment has been running a deficit of around 6% of GDP. This is going to tighten yet further in 2008, so there is no supportive fiscal environment. And as I keep arguing, it is very hard to see a supportive monetary one. The IMF in their October World Economic Outlook also put a similar figure of 2.7%, while the EU commission in November 2007 came in with the same 2.6% as the OECD.

Perhaps the prize for the most exaggerated prediction here must go to GKI Gazdaságkutató Zrt, who argue that Hungary should expect the incredible annual growth rate of 3.5%. My own view is much more nuanced. I think I am reasonably confident in holding to my recession forecast for 2008, although of course, "recession" does not mean negative growth for the whole year (technically it is simply 2 consecutive quarters of negative growth), so we might then go on to see what, between 0.5 and 1% growth over whole year 2008 (and the only really doubt is whether the contraction starts in Q4 2007, or in Q1 2008). But it is what happens in 2009 and 2010 that matters really, and at this point so many variables are in play (and interrelated ones to boot) that I can only say I envy those who have the courage - or the temerity - to stick their necks out). And of course, if we get a large correction in the value of the forint, then all those carefully weighed and weighted forecasts will, without a shadow of a doubt, go straight and directly off into the bin.