The current account moves to surplus
Overview:
For a country that was, until recently, recording a massive current account deficit Bulgaria is now in the unusual position of running a surplus. Moreover, it has achieved this with its currency still pegged to the Euro. However, rather than a massive increase in productivity this is largely a function of the two-speed economic recovery. Domestic demand remains extremely soft (private consumption and fixed investment are still falling) while net exports are strong. In other words, this surplus is unlikely to be sustainable as growth (eventually) picks up from its current modest 2% pace towards its long-term trend. In this scenario, demand for imports is likely to increase rapidly. The sustainability of the Currency Board, then, continues to rely on tight fiscal policy and keeping real wage growth in line with productivity growth.