ECONOMIC REVIEW 2/2020 EConoMIC REVieW 2/2020 BULGARIAN NATIONAL BANK The BNB quarterly Economic Review presents information and analysis of balance of payments dynamics, mon- etary and credit aggregates, their link with the development of the real economy, and their bearing on price stability. External environment developments are also analysed since they directly affect Bulgarian economy. The Review con- tains quantitative assessments of short-run developments in major macroeconomic indicators like inflation, growth, exports, imports, trade balance and the balance of payments current account, foreign direct investment, monetary and credit aggregates dynamics. The Economic Review, issue 2/2020 was presented to the BNB Governing Council at its 13 August 2020 meeting. It employs statistical data published up to 10 July 2020. Given the enormous scale of the economic shock resulting from the spread of COVID-19, the charts in this issue and in other 2020 issues will encompass the period from early 2008, which will allow to compare the change in economic variables during the global financial and economic crisis in 2008–2009. The estimates and projections published in this issue should not be regarded as advice or recommendation. Ex- clusively the information user is liable for any consequences thereof. The Economic Review is available at the BNB website, Research and Publications menu, Periodical Publications sub-menu. Please address notes, comments and suggestions to the BNB Economic Research and Projections Di- rectorate at 1000 Sofia, 1, Knyaz Alexander I Square. © Bulgarian National Bank, 2020 1, Knyaz Alexander I Square 1000 Sofia, Bulgaria Tel.: (+359 2) 9145 (extensions) 1351, 1209, 1806, 1227 Website: www.bnb.bg This issue includes materials and data received up to 17 August 2020. The contents of the BNB Economic Review may be quoted or reproduced without further permission. Due acknowledgment is requested. ISSN 2367 – 4962 (online) Economic Review • 2/2020 2 CONTENT Summary ................................................................................................................................................................................ 7 1. External Environment ................................................................................................................................................ 9 Current Business Situation ........................................................................................................................................... 9 International Commodity Prices .................................................................................................................................. 18 2. Financial Flows, Money and Credit .................................................................................................................. 21 External Financial Flows ............................................................................................................................................. 21 Monetary and Credit Aggregates .............................................................................................................................. 25 Interest Rates ............................................................................................................................................................. 30 Financial Flows between the Consolidated Budget and Other Sectors of the Economy .......................................... 34 3. Economic Activity ...................................................................................................................................................... 37 Current Economic Environment ................................................................................................................................. 37 Exports and Imports of Goods and Services ............................................................................................................. 41 Behaviour of Firms and Competitiveness .................................................................................................................. 46 Household Behaviour ................................................................................................................................................. 52 Fiscal Policy Effects on the Economy ........................................................................................................................ 55 4. Inflation ........................................................................................................................................................................... 61 5. Bulgarian National Bank Forecast of Key Macroeconomic Indicators for 2018–2019 ....... 69 Forecast ..................................................................................................................................................................... 70 Forecast Revisions ..................................................................................................................................................... 73 Risks to the Forecast .................................................................................................................................................. 74 3 Bulgarian National Bank Charts Foreign Currency Purchases and Sales between the BNB and Banks (on a Monthly Basis) ................................................. 27 Global PMIs .................................................................................. 9 Annual Growth of Credit to Non-financial Corporations Global Industrial Production ....................................................... 10 and Contributions of Individual Types of Loans ......................... 28 World Trade ................................................................................ 10 New Loans to Non-financial Corporations (Monthly Volumes) ...................................................................... 28 Inflation Measured through CPI .................................................. 10 Annual Growth of Household Credit and Contributions Contribution to the Change in Real GDP in the Euro Area of Individual Types of Loans ....................................................... 29 by Component ............................................................................ 11 New Loans to Households (Monthly Volumes) ........................... 29 Contribution to the Change in Real GDP in the Euro Area by Country .................................................................................. 12 Changes in Demand and Credit Standards ............................... 30 PMI and the Change in Real GDP in the Euro Area ................... 12 Overnight Interbank Money Market Rates (Average Monthly Value) ............................................................ 31 Euro Area Unemployment Rate and Employment Growth ......... 12 Interest Rates on New Time Deposits ........................................ 32 Euro Area Inflation Rate .............................................................. 12 Lending Rates on New Loans to Non-financial Corporations ECB Interest Rates, EONIA, €STR and Excess Liquidity by Currency ................................................................................ 32 in the Euro Area Banking System ............................................... 13 Interest Rates and Annual Percentage Rate of Charges EURIBOR Dynamics ................................................................... 13 on New Household Loans .......................................................... 33 Contribution to the Change in Real GDP in the United States Interest Rates on New Corporate and New Housing Loans: by Component ............................................................................ 14 the Spread between Bulgaria and the Euro Area ....................... 33 ISM-PMI and Change in US Real GDP ....................................... 14 Long-term Interest Rates in the Primary and Secondary US Consumer Confidence Indices ............................................. 15 Markets of Government Securities ............................................. 34 US Inflation Rate ......................................................................... 15 Reference Government Securities Yield Curve in Bulgaria ........ 34 US Unemployment Rate and Number of New Employees Consolidated Budget Effect on Other Sectors’ Liquidity in the US Non-Farm Sector ......................................................... 15 (Monthly) ..................................................................................... 35 Manufacturing and Services PMIs and Change in China’s Contribution to GDP Growth by Final Use Component .............. 37 Real GDP .................................................................................... 16 Business Climate and Consumer Confidence ........................... 38 Manufacturing PMI in China and Major Components ................ 17 Business Climate Indicator Dynamics ........................................ 38 Retail Sales in China ................................................................... 17 Expectations about Future Economic Activity ............................ 38 China’s Inflation Rate .................................................................. 17 Uncertainty Indicator in the Economy Fixed Capital Investment in China by Sector ............................. 17 (Corporations and Households) ................................................. 38 Brent Crude Oil Prices ...............................................................