SOFIA, Oct 13 (Reuters) – Bulgaria’s central bank said on Tuesday the impact of the coronavirus on the Bulgarian economy this year would be less harsh than initially expected and revised its GDP forecast to a contraction of 5.5% from a previously expected decline of 8.5%.
The bank said the slower contraction this year and expected more moderate demand for Bulgarian exports over the next two years will slow the rate of the economic recovery. It cut its forecast of GDP growth in 2021 to 4% from a previous forecast of 5.1%.
The central bank sees the Balkan country returning to its 2019 growth level by the middle of 2022.
“Compared to our previous forecast based on data up to June 22, the real GDP is expected to mark a lower decline in 2020 and economic activity to register weaker growth in 2021–2022,” it said in a statement.
The central bank said the economic activity has started to recover in the third quarter, but with the uncertainty over the development of the pandemic, it sees a 60% chance that the contraction could vary between 3.2% and 8% this year.
The government’s increased spending both as investments and support to business and households has helped cushion the hit of the coronavirus on the small and open economy, the central bank said.
Bulgaria plans to run a fiscal deficit of 3% of economic output this year and is preparing to boost spending on pensions, increase public sector salaries by 10% and provide child support subsidies to all parents in 2021.
The central bank said a drop in private consumption and fuel prices would slow annual EU-harmonised inflation to 0.3% at the end of the year from 3.1% at the end of 2019 (Reporting by Tsvetelia Tsolova in Sofia Editing by Matthew Lewis )