Though Bulgaria was sidetracked by the economic slowdown, the country fared better in 2008 than many of its neighbours and fellow members of the EU, maintaining higher levels of growth, seeing a fall in inflation and recording solid rates of foreign direct investment (FDI).
According to official figures published by the state news agency, Bulgaria's gross domestic product (GDP) grew by 7% in the first three quarters of the year, compared to the same nine months in 2007. Though this expansion slowed somewhat in the third quarter, easing to 6.8% year-on-year in the July to September period, compared to 7.1% in the previous quarter, it is estimated that when final figures are released early in the new year, GDP for 2008 will have grown by 6.5%.
Growth for 2009 is expected to abate, with the International Monetary Fund (IMF) predicting an increase of 2%. However, Bulgaria is not expected to fall into recession in the new year, setting the country apart from many of its fellow EU members.
While FDI in Bulgaria slowed in 2008, the decline for the first 10 months of the year was not unexpected, given the climate of the international economy. Up to the end of October, the country drew $6.57bn worth of FDI, representing 14.3% of GDP, according to figures issued by the Bulgarian National Bank (BNB) in December. This represents a fall of 9.2% compared to the same period in 2007. The Bulgarian economy nevertheless remained attractive for overseas investors.
One area of the economy that fared poorly was the stock market, with the Bulgarian Stock Exchange starting the year with a record 25% drop in January, and taking further hits in September and October following news of the deepening global downturn.
By the end of trading in 2008, the exchange's two main indexes, the Sofix and BG 40, had both retreated by more than 79% each, while market capitalisation fell by just under 60%. By year's end, total capitalisation represented 18.47% of GDP, compared to 51.29% at the close of 2007.
High oil and commodity costs fuelled inflation in Bulgaria in the first half of the year, with price rises hitting a 10-year high of 15.3% in June. However, in subsequent months, as energy costs started trending down and supply side demand fell, inflation began to ease, dropping to 8.8% at the end of November. Looking forward, the IMF predicted in mid-December that inflation would fall to 4.5% in 2009, mainly due to lower food and oil prices and some of the heat being taken out of domestic demand.
Bulgaria's real estate sector experienced a slowdown of its own, though it would have been hard to maintain the breakneck rate of growth experienced in 2007, when residential property prices increased by 29%. Estimates at the beginning of the year projected property price increases of 10-15% for 2008. Though figures for the first quarter had suggested prices would continue to surge at 2007 levels, by the third quarter increases had eased to around 3%, according to a report by the local media in late December.
While sales to foreigners were down, Bulgaria still earned $1.6bn from real estate sales to overseas buyers in the opening 10 months of the year, down from the $2bn generated in the corresponding period the previous year, BNB figures released in December showed.
Bulgaria's hopes of becoming a major energy transit country were given a significant boost in July, when the Bulgarian parliament ratified an agreement with Russia to build a pipeline to carry Russian gas to European markets. State gas monopoly Bulgargaz will form a joint company with Russia's Gazprom to construct and operate the pipeline, which will have an annual throughput capacity of 31bn cubic metres when completed, possibly as soon as 2013.
Combined with the proposed Nabucco pipeline - the project long championed by Sofia to bring Central Asian gas to Europe - Bulgaria could serve as the transit point for 10-12% of the EU's gas supplies, Prime Minister Sergei Stanishev said in June.
In September, initial work began on Bulgaria's second nuclear power station, with construction scheduled to commence in May 2009. The Belene facility will feature two 1000 MW reactors, with the first due to come on line in 2013.
The Bulgarian government has vowed to step up spending in the new year to stimulate the economy and ward off the worst effects of the global downturn. Having initially announced a budget with total revenue of $14.7bn, and expenditures of $7.9bn, the state is well placed to build on its pump-priming efforts in 2009. Combined with the fact that most of the country's economy remained in positive territory in 2008, this should allow Bulgaria to ride out the international economic storm.