Recent Economic Developments
Based on the latest estimates, year-on-year (y-o-y) growth in the first and second quarter of 2019 reached 2.7 and 2.9 percent, respectively. Given this performance, the growth projection for 2019 has been revised downward from 3.5 to 3.3 percent. As in the past, strong consumption and investment are not sufficient to compensate for an increasingly negative contribution of net exports to growth, with growing consumption (both public and private) to a large extent matched by increased imports.
Looking at sectors, industrial output fell by 2 percent in the first half of 2019, including a 2.8 percent decrease in manufacturing. Agriculture output is projected to decline or stagnate.
Growth has contributed to labor market improvements. The second quarter activity and employment rates among the population aged 15 and above continued to increase in 2019, reaching 54.8 and 49.1 percent, respectively. The employment rate remains lower among female workers and youth. Unemployment declined to an estimated 10.3 percent in the second quarter of 2019, and the unemployment rate for the population aged 15–64 stood at 10.8 percent. In the first half of 2019, average wages increased by 9.9 percent in nominal terms (7.2 percent in real terms).
The private/public sector wage gap has narrowed, with private sector wages growing by 10.7 percent compared to 9.5 percent in the public sector. Thanks to these trends, combined with higher pensions, poverty (living on income under US$5.5/day in 2011 purchasing power parity [PPP] terms, the standardized middle-income-country poverty line) is estimated to have declined from 23.8 percent in 2014 to 19.8 percent in 2019.
The consolidated general government budget showed a surplus of 0.3 percent of GDP in the first half of 2019. Revenues increased by 7.6 percent in nominal terms compared to the same period in 2018. Budgetary spending rose by 9.6 percent in nominal terms, corresponding to 1.7 percent of annual GDP.
Inflation is on a declining path, after reaching a peak in April of 3.1 percent (y-o-y). External imbalances widened as evidenced by an increase in the current account deficit (CAD) by 51 percent in the first half of the year, now projected at 6.7 percent of GDP for 2019. Inflows of foreign direct investment remain strong—they were up 28 percent in the first half of the year. Total external debt continued to decline as a share of GDP to 62.5 percent at end-March 2019; public debt declined to 54 percent of GDP by end-June.
The economy is expected to continue to grow at around 3–4 percent over the medium term. Investment and consumption will be the main drivers of growth. Consumption will increase as wages and employment are expected to continue to grow, pushing up imports and widening the CAD.
Medium-term growth projections crucially depend on the pace of structural reforms and political developments.
The acceleration of the EU accession process is important not only from the point of view of strengthening institutions but also as a signaling device to attract investment. Short- to medium-term growth prospects may be affected by lead times for the election campaign and formation of the government.
With economic growth and improvements in the labor market, poverty is expected to continue its gradual decline. Poverty, measured as income below the standardized US$5.5/day 2011 PPP line, is estimated to fall to around 18.7 percent by 2020.
Last Updated: Oct 25, 2019