Despite statistical data showing that Bulgaria's economy shrank by 5.8 per cent year-on-year in the third quarter of 2009, Bulgarian Finance Minister Simeon Dyankov was optimistic that the first signs of recovery were already visible.

"The fourth quarter of 2009 and the first quarter of 2010 will be the toughest for the Bulgarian economy but we’re already seeing positive signs," he said. Dyankov suggested the decline was less than expected, fuelling hopes that the full-year figure will fall short of the forecast 6.3 per cent economic contraction.

According to Dyankov, the recovery will be backed by the crackdown on smuggling as the Customs Agency has curbed illegal imports from Turkey and China.

Gross domestic product (GDP) figures released by the National Statistical Institute on November 13 were close to matching the forecasts made by economists in an earlier Dnevnik poll, which projected a median contraction of 5.5 per cent in the third quarter.

Dyankov criticised the stimulus plan by the former cabinet, led of socialist prime minister Sergei Stanishev, claiming that it bad planning and the inability to absorb European Union funding has worsened the recession by between one and 1.5 percentage points.

"Fiscal expansion at a time of crisis should be done by small-scale infrastructure projects that achieve quick results or by sector policies we have seen in the car industry. Bulgaria could have insulated hospitals, schools and kindergartens but instead it opted for large-scale projects that didn’t work out," Dyankov said.

Bulgaria’s "deepening recession just underscores the vulnerability of the countries with fixed exchange-rate regimes," Tim Ash, head of central Europe, Middle East and Africa research at Royal Bank of Scotland, wrote in a note quoted by Bloomberg. "To close still large current account deficits, they have to aggressively deflate domestic demand," he said.

As a silver lining of the downturn, Bulgaria’s balance of payments has improved, with September becoming the third month in a row to see a current account surplus. According to figures released by the Bulgarian National Bank, the surplus was 24.3 million euro, compared to a 606 million euro deficit in September 2008. For the nine months, the deficit shrank by 62 per cent year-on-year to 2.1 billion euro.

Source: Dnevnik