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Photo: Dimitar Kyosemarliev, Investor Media Group |
In the last week, the first data on the state of the economy began to appear in March and the first quarter of the year, which allows us to start we also give quantitative dimensions of the alleged serious impacts of the pandemic and measures to limit it.
What can be seen confirms the manifestation of a supply shock caused by outright bans and blockages of supply chains, and a sharp change in consumer attitudes as a result of complete and profound uncertainty and the associated extreme caution behavior. he writes in the analysis of Lachezar Bogdanov by the Institute for Market Economics team.
However, it should be noted that the values of many indicators for March and the first quarter are based on preliminary estimates and data, and especially on the fact that aggressive restrictive government measures were introduced in most European countries only in the middle of March. ; All this means that a more realistic image will give the data for April and May. However, what we know so far:
According to Eurostat’s express estimate, in the first quarter of 2020 EU GDP shrinks 2.7% compared to the same period in 2019 and in the euro area, 3.3%. Currently there are no data for Germany, but the annual decrease in France is 5.4%, in Italy – 4.8%, in Spain – 4.1%. This gives reason to expect a decline of at least four times greater in the second quarter. In March, German exports fell 7.9% compared to March 2019, and imports 4.5%. The industrial production index for March decreased 9.2% compared to the previous month, while in the automotive industry the decrease was 31.1%. Italy’s exports to a third country in March fell 12.7% annually and imports 19.8%.
EU retail sales fell 8.2% in March compared to the same month of 2019, and in the euro area, 9.2%. There are no data for Italy, but in Germany the decrease is relatively limited: 3.1%, while in Spain it is 13.1%, in France, 16%, in Austria, 12.4%. The data also shows the expected change in household priorities, with an increase in sales of medicines of 5% and food and beverages, 8.1% annually, while at the same time clothing sales fell almost a 42%, electronics, household appliances and furniture, in more than 14%, fuels, in more than 20%. Restrictions on retail store activity logically led to an increase in distance sales by almost 12%.
Next week we expect the express estimate of GDP for the first quarter in Bulgaria.
At the same time declining industrial production for March it already gives the first touches on the impact by sector.
With a total decrease in the manufacturing industry by 9.8% compared to March 2019, furniture production is decreasing by almost 25%, and with it, and wood products by more than 14%, mechanical engineering , in 21%, the automotive industry. by almost 18%.
The blockade of traditional trade and the sharp reduction in consumption across Europe It also led to a serious drop in clothing production of 26%. Other industries, such as metallurgy, the chemical industry, paper and plastic, reported a minimal decline. At the same time, food production grew by 8.3% and medicines by 4.8%.
Retail trade in Bulgaria in March underwent structural changes similar to those reported in the EU. The annual decrease for the month was 14.6%, with clothing sales falling by more than 63% and electronic products by more than 40%.
On the one hand the closure of large shopping centers has obviously played a role in these assets, but probably more important is the consumer’s reaction to limit the purchase of goods that are not immediately necessary.
Cold weather, including heavy snowfall, work from home, and the blockade of district cities have affected more than 37% decline in fuel sales. Bulgarian consumers dramatically increase purchases of medicines by 14.4%, as well as food and beverages by 3.4%.
There has also been a sharp decline in construction, but so far it is difficult to say whether this is due to weather conditions or other factors that began to take effect before the effects of the pandemic. On an annual basis, construction output fell 14% in March, with a 16.8% contraction in civil engineering.
There is also a trend towards delay due to gradual “cooling” in the construction permits issued in the last quarters after the peak since mid-2018. In the first quarter of 2020, the area in permits issued for residential buildings decreased by 21.1% compared to the same period in 2019, and the area in administrative buildings, in 4.8%.
Currently, the most reliable current indicator of the development and depth of the crisis is labor market data.
For the six weeks from March 16 to May 3 the newly registered unemployed there are 114 thousand, and 19.6 thousand people have started working. However, the operation of the 60/40 program must be taken into account, which, according to the latest figures, has claimed 140,000 jobs. At the same time, a significant number are probably those on unpaid leave and with reduced working hours, who do not participate in the program, some of whom will be released if there is no strong recovery in economic activity in the next three months ( more in the analysis here).
Until now, only the immediate effects of the sudden “closure” of part of the economy and social life are visible in Europe and in our country.. As expected, car orders logically collapsed, shutting down car factories and, along with them, their suppliers along the value chain.
In many countries factories were affected by restrictive measures and traffic bans. Households postponed all purchases beyond those for current support and, instead of eating out, began shopping for food in stores.
However, developments in Bulgaria in the coming months are difficult to predict, at least because: unlike the 2008 crisis, when we had a clear market signal to transform the economy from national investment and construction to industries and services Export-oriented, all major trading partners are now in crisis with an unclear outcome;
There is no certainty that the crisis will not bring structural changes in the medium term.as serious collapse of tourism and international travel, trade wars and blockade of established models of specialization and division of labor;
Until now, the practical blocking of tourism has not had a serious impact on the macro indicators, but this will happen in the second and especially in the third quarter;
The labor market in Bulgaria in almost the entire history of the transition has offered two “vents” in crisis: work in bars, restaurants and hotels in tourist centers, or emigration in another country, temporary or permanent; now both alternatives are practically non-existent.
Unlike the 2008 crisis, so far in Bulgaria we do not have a strong liquidity shock for a large part of companies and households; If entrepreneurs can anticipate the expected transformations in the global and European economy, they will have much easier access to resources to carry out their projects.
In such an environment, it is extremely difficult to make quantitative forecasts.
However, the European Commission has released its spring economic forecast. For 2020, expectations are for a decrease of 7.4% compared to 2019 in the EU and 7.7% in the euro area, and for Bulgaria, a decrease of 7.2%. As expected, the major collapse occurred in the second quarter (14.9% in the euro area and 14.6% in Bulgaria), but unlike previous expectations of an early recovery, the document is based on a rather severe decrease of more than 8% in the third quarter in the euro area.
The Commission expects a significant contraction of investments 18% and exports of goods and services by 13.2%, while private consumption will decrease by 5.8%. Unemployment is expected to rise 2.8 points to 7%.
The forecast appears to be based on a relatively conservative budget management assumption, with an expected deficit of 2.8%, even with a fairly severe decline in GDP of 7.2%.
Image may be very different with less than planned investment collapse, as well as a more efficient targeting of EU funds. However, the greatest uncertainty comes from the external environment, so the indicators for Bulgaria will largely depend on what is happening in the main European economies.
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