“There Is No Middle Ground”: Bulgaria Is on the Brink Between Recession and Inflation

The Bulgarian economy is caught between a technical recession and high inflation, and there is no middle ground. Assoc. Prof. Dr. Shteryo Nozharov of the University of National and World Economy (UNWE) stated this during the 11th “War for Markets” conference organized by the credit risk insurance company Coface.

In his remarks he addressed the issue of high economic growth, which a number of macroeconomists emphasize is artificial and inflated by domestic consumption. According to him GDP growth is supported by so-called “helicopter money.”

In other words you are taking on debt amounting to about 7% of GDP just to achieve 3% economic growth. Not to mention that public sector personnel costs account for 11% of GDP, compared to an EU average of 9.3%, and if you exclude those costs, real growth drops to a mere 0.5%. “In other words Bulgaria is then in a situation of either a technical recession or high inflation. There is no middle ground,” he said.

A technical recession means a decline in GDP for two consecutive quarters.

According to him inflation in Bulgaria is not simply imported from abroad. While the average forecast for the eurozone is 3.1%, for Bulgaria it is 4.1% – a difference that, according to Nozharov, reveals internal structural weaknesses, including energy and carbon intensity that is much higher than the eurozone average.

The Middle-Income Trap

The most alarming sign for Nozharov is the trade balance, whose deficit has doubled in just a few months.

The spring forecast showed a 4% trade deficit, but now ours stands at 8% – this indicates structural erosion that is affecting competitiveness,” he emphasized.

The reason is the so-called middle-income trap: incomes have risen to such an extent that the country is no longer cost-effective for low-value-added manufacturing, yet it still lacks an innovative and educational ecosystem capable of attracting high-value-added investors.

You are neither attractive for low-value-added investments nor for high-value-added ones,” Nozharov summarized.

A Stock Exchange of Four Trades

A point of contention in the discussion was the state of the Bulgarian Stock Exchange (BSE).

The market capitalization of our capital market is less than 10% of GDP – in neighboring Greece it is 30% and in France 70%. In other words we do not have a capital market,” he stated.

According to him the entire activity of the stock exchange boils down to “four major deals a year.”

Boyko Takov, executive director of the Executive Agency for the Promotion of Small and Medium-Sized Enterprises (EAPSME), confirmed that “the numbers are what they are,” but there is still cause for optimism.

Currently the EAPSME in collaboration with the BSE is working on a project to help companies utilize the various tools available on the stock exchange including the crowdfunding platform whether on the BEAM growth market or elsewhere.

Overall capital markets in Europe are not at the same level as those in the US, but there are still many good examples from our capital market, and the most recent one is Shelly,” he added.

He emphasized that the biggest shortfall is psychological and that “what we are suffering from is a lack of self-confidence.”

Ultimately the state of the capital market is what it is not because of the government but because of supply. Such are the companies that have decided to list on the stock exchange. Our mindset is such that people invest in apartments, not in companies,” Takov summarized.

Translated with DeepL.