UBB Construction and services sectors – GDP growth drivers

05 July 2023
- Investments in the economy are growing for a second quarter in a row
- Consumption is also growing, however already undermined by the accumulated inflation
- Inflation has once again slowed down its pace in the month of May, by moving into the single-digit zone
- Total unemployment is now below 4.0%
- The two-digit growth in the average salary continues with its proinflationary pace
While analyzing the dynamics of the macroeconomic indicators over Q1 of this year, UBB comments on the key trends, based on presently available data.
The Bank’s analysts observe that as per NSI (National Statistical Institute) preliminary data Bulgaria’s Gross Domestic Product (GDP) has reported a very good real growth of 2.3%, against the backdrop of a technical recession in Germany and low growth in other EU countries. On the demand side the growth was driven by consumption (+2.1%) and by investments (+1.8%), against the background of a symmetrical growth and drop of 2.3% in, respectively, export and import.
„The two-digit average annual inflation over the quarter (14.1% harmonized), incl. the one accumulated up until now, exerted a pressure on consumption, which, despite the solid (nominal) increases in salaries (+16.2%) and in consumer lending (+13.0%) grew moderately, as compared to previous quarters.”, commented Dr. Emil Kalchev, PhD, Chief Economist of UBB.
„The fact that investments are also growing over a second quarter in a row, after a continuous drop during seven consecutive quarters, even though at a relatively slow pace, indicates that the economy is still adjusting to the unstable (internal and external) political situation.“, Dr. Kalchev added.
On the production side the real annual GDP growth over the quarter was triggered by the intense dynamics in the construction industry (+7.0%) and the stable growth in services (+3.2%). The agriculture sector increased its production with the moderate 1.1%, while the industry registered a result, comparable to those of Q1 2022 (+0.1%)
„The two-digit real growth rates of the industry, which started to be observed over Q4 of 2021 and continued over the first three quarters of 2022, driven by the production of electricity and the military sector, remained in the past. Prices of electricity are back to normal, which has slowed down the growth pace of its production. On the other hand, the slowdown of the economies of key European partners (Germany included ) has also started impacting the sector.“, Dr. Kalchev explained.
In turn, inflation declined again in May – from 10.3% as of April (harmonized) down to 8.6% (vs May 2022), thus going into a one-digit territory. Base inflation (excluding food and fuels) also continued its downward trend – from 12.1% down to 10.7% in May, however slowly than total inflation. The so-called consumer inflation (according to the national methodology) has respectively slowed down, as it registered slightly higher values than the harmonized one, but still lower than those of base inflation.
„The reason for this situation is the quicker decrease in prices of electricity and food, as compared to those of the other consumer goods and services. Over the increase phase the inflation drivers were exactly electricity and food prices, that were growing much faster and of considerable amount. Subsequently, inflation spilled over the remaining goods and services, thus contributing to the formation of inflationary expectations. These inflationary expectations are now delaying the decrease in base inflation, which is being additionally fed by the growth in consumer and mortgage lending and the pro-cyclical State Budget, struggling to contain deficits of 3.0% of GDP. Additionally, the unemployment rate fell down to 3.9%, due to which the average salary is increasing (with over 16%), thus impacting the inflation slowdown downwards.“, Dr. Kalchev also added.