STAGNATION will again be a major problem for Bulgaria's economy in 2006, continuing the trend of the past two years. The non-government organisation, the Centre for Economic Development (CED), pronounced this in its annual year-end report on the Bulgarian economy, released on February 10.

Bulgaria's economic growth for 2005 will not exceed its 2004 rate, which stood at 5.6 per cent.

Despite record growth of six per cent and 6.4 per cent registered for the first two quarters of 2005, the summer floods proved detrimental and growth for the third quarter declined to 4.6 per cent, according to National Statistical Institute (NSI) data.

According to Alexander Bozhkov, director of CED, the emergence of the new Government and its programme did not give grounds for optimism among entrepreneurs. The business situation worsened and when it steadied at the end of 2005, it was at levels lower than the 2003 and 2004 averages.

A business inquiry conducted by CED last October showed that the share of companies expecting their condition to worsen increased from 10.5 per cent to 16.8 per cent. The Estat index of the business climate, which CED measures quarterly, reached its all-year high of 3.73 points in October, well below its 2004 minimum of about five points. Production growth decreased in the second quarter of the year and exports stagnated, while imports rapidly increased due to a jump in individual consumption and investments. The increase in labour efficiency lagged behind the rate of employment growth.

At the same time, investments in the economy surged as a result of credit expansion, requirements to meet standards, and the need to restore the damage from the year's floods.

The current account deficit continues to expand, causing concerns about Bulgaria's financial stability. For the first 10 months of 2005, the gap twice exceeded  the deficit registered for the corresponding period in 2004. Economic growth in the third quarter of the year slowed to 4.6 per cent on an annual basis. Given the 5.6 per cent growth for the first nine months of 2005, growth for the whole year is not very likely to exceed the 2004 rate of 5.6 per cent, the report said.

The majority of respondents did not perceive these conditions for growth. These facts, according to Bozhkov, led to the conclusion that 2006 will be the year of stagnation. It will be the year of expectations to see if Bulgaria, as scheduled, will join the European Union on January 1 2007.

"When people are in a waiting position, they usually do nothing but wait," Bozhkov said in an interview for a Bulgarian language newspaper. "The entrepreneurs are now abstaining from taking initiatives, because they are afraid of choosing the wrong way to go. If there are no changes in the policy and composition of the Government, by the end of its term, growth will drop to one to two per cent a year," Bozhkov said.

CED also expects stagnation in exports and a rise in imports, mainly due to the jump in individual consumption and investments.