Bulgaria economy briefing: Epidemic economy: the first impact of Coronavirus on Bulgarian economy - China-CEE Institute

ISSN: 2560-1601

                                                                                     Vol. 27, No. 2 (BG)

                                                                                              March 2020

                                         Bulgaria economy briefing:
  Epidemic economy: the first impact of Coronavirus on Bulgarian
                                                 economy
                                             Evgeniy Kandilarov

                                                              1052 Budapest Petőfi Sándor utca 11.

                                                              +36 1 5858 690
Kiadó: Kína-KKE Intézet Nonprofit Kft.
                                                              office@china-cee.eu
Szerkesztésért felelős személy: Chen Xin
Kiadásért felelős személy: Huang Ping                         china-cee.eu

2017/01

Epidemic economy: the first impact of Coronavirus on Bulgarian
                                           economy

      On March 7 Bulgaria's health ministry announced that it has confirmed the first four cases
of the novel coronavirus disease (COVID-19) in the country. The global coronavirus outbreak
is expected to affect negatively Bulgaria's economy, with tourism, information technology,
automotive manufacturing and transport to be worst hit. Technology companies in Bulgaria are
expected to suffer due to disruptions in the supply chain from China. The coronavirus outbreak
in Europe will hamper the operations of Bulgarian small and medium-sized enterprises (SMEs)
as well as those of big industrial companies. The negative effect on Bulgaria's tourism and
transport sectors can already be noticed. The problem comes with the spreading of the virus in
the EU, especially in Bulgaria's major trading partners in the union such as Italy, Germany,
France and Greece. This threat is exacerbated by the already evident tendency of economic
slowdowns in major EU countries, which are the country's main foreign trade partners. In
practice, Bulgarian export-oriented enterprises will receive fewer orders from external
contractors. For some companies, this can prove fatal.
      Judging by the countries that are more heavily infected with COVID-19, the Bulgarian
economy is about to face lot of new challenges. Experts believe that the tourism, transport,
entertainment industry, and export-oriented industries will be hit hardest. Losses for millions
and the threat of bankruptcy due to the coronavirus in Bulgaria, predict business analysts.
Hundreds of canceled tourist reservations, reduced supplies of goods and raw materials and
closed cultural institutions are the first effects of the epidemic on the Bulgarian economy.
      Transport is one of the first sectors to feel the impact of the coronavirus in Bulgaria. The
decline in the production and supply of raw materials and goods, as well as the utter
unpredictability of roads for carriers, are already suffering serious losses for the industry.
Dozens of closed companies in the most risky areas have already forced Bulgarian carriers to
stop their trucks or reduce their rates. Seven countries travel to ports in Greece and then to
southern Italy. Traffic is also "stressed" by the complete unpredictability of roads for carriers
who do not know at what point and where they may encounter a roadblock. So far, however,
there are no specific traffic bans for International Road Transports.
      Trade deals with affected countries are decreasing, with major damage expected in the
tourism, IT and electronics sectors, as well as in the automotive industry.

                                                1

In recent days, telephones at travel agencies have been calling for travel cancellations
rather than reservations. In one tour operator's office, at least 80 trips are canceled every day.
The main tourist markets that Bulgaria relies on are the Scandinavian, German, and neighboring
countries - Romania, Greece, Serbia. In all countries there are cases of coronavirus and
everywhere there is a refusal to travel, so this will undoubtedly affect Bulgarian tourism as well.
      The most visible hit right now is the spring excursion program to and from the country.
Seaside hotels are also already feeling the negatives of the coronavirus. Early bookings for the
summer season, which traditionally continue until late March, are virtually frozen at the
moment. Most seriously this is felt by German tourists. This threatens the summer tourist
season, which traditionally accumulates about 70% of the sector's revenues. Over 30% canceled
reservations at Booking.com (the biggest website for hotel bookings) and if this psychosis does
not stop Bulgaria will have zero or negative summer season, which will be devastating for the
economy.
      Bulgarian tourism generates about 13% of Bulgaria's GDP together with the related
industries - food industry, transport, forwarding, etc. Deleting this 13% of GDP will be
detrimental to the Bulgarian economy. Most of the Bulgarian employees are employed there -
ie. one can expect an increase in unemployment, a decrease in income growth, etc.
      Airlines also reported a decline in travel. Psychosis from the spread of the coronavirus
leads to travel refusals even to destinations where no coronavirus is even registered. This can
lead not only to losses, but also to redundancies and even bankruptcies, the industry warns.
      The entertainment industry in the country cannot but suffer from the severe restriction of
mass public events - sports, music, theatre, cinema, and all cultural events. From what is
happening in the West European countries most affected by the coronavirus, we can judge that
the restaurant and hotel industry will suffer damage as well. No one who cares their health will
risk participating in events involving many people.
      In the first days of confirmed cases of coronavirus in Bulgaria, many restaurants reported
a serious decline in clients. The planned family holidays are being massively canceled and a
paid deposit has been withdrawn. The industry does not exclude mass bankruptcies. This is the
reason why they asked for financial support from the government. The Bulgarian Association
of Restaurants has sent a letter requesting discussion of "tax reliefs, allocation of funds for
payment of salaries, assistance to suspend and defer payment of their debts for taxes, fees, social
security, rents and credits". The reason for the request is that they suffer great losses due to
measures against the spread of the coronavirus.
      The losses are already rising up for cinemas, theaters, galleries and other cultural
institutions that have been closed to the public for days. Visits to gyms and other sport areas

                                                2

are also slightly reduced. The requests for freezing for previously purchased monthly cards are
rising as well.
      About 60% of Bulgaria's exports are to EU countries. Therefore, any blocked production
in a partner country is also affecting Bulgarian economy. So far there is no shortage of goods
in Bulgaria. Dealers claim that they are still able to load the goods since orders were made half
a year ago, when the factories in China were working at full capacity, and there are many buffer
warehouses in Europe. However, if the crisis persists, deliveries could be severely reduced in
up to two months.
      “Factory of the world” - China, more than a month does not work. China is a major
supplier of materials and raw materials to Bulgarian enterprises, and when there is a lack of
basic raw materials, this impedes the production of products that still need to reach the market
and the end consumer.
      It is not excluded that traders can make losses also because of fewer purchases made by
consumers during a crisis.
      Food shortages, including essentials, are not expected. There are enough goods in the
logistics centers of all major chains to be rhythmically charged. So no need for food and
medicine supplies.
      Now it is important to realize the importance of the domestic Bulgarian market and that
some economic sectors have been unfairly underestimated so far. The reason is that local
enterprises are already facing problems with imports and exports due to the difficulty of finding
resources in international markets and the pursuit of more expensive alternatives.
      There are definitely difficulties with imports. In the household chemicals and cosmetics
sector, it is necessary to look for substitutes for some raw materials that are currently depleted.
This leads to an increase in the cost of production. In addition, when there is overtime that is
more expensive, there is also an increase in the value of products for end customers.
      There are yet to be problems with exports from Bulgaria, as Italy and specifically the
richest northern part of the country is our second largest trading partner after Germany. While
initially the biggest problem for the international economy came from China, today more people
are recovering there than they are getting sick, while for Western Europe, which concerns us
far more directly, the problems are just beginning. This will greatly affect not only Bulgarian
exports, but also Bulgarian imports, since, for example, trade with Italy is almost equal -
approximately as much as Bulgaria import from there, it also export to them.
      In conclusion we may say that the spread of the coronavirus will surely lead to a recession
or economic crisis in Bulgaria. This is why urgent measures are needed to limit the effects on
the Bulgarian economy. The most important thing at the moment is to control the spread of the

                                                3

virus and to protect people, but the future must be secured in social and economic terms since
economic crisis would lead to even more impoverishment of Bulgarian citizens, collapse in the
Bulgarian economy, loss of jobs. Against this background, the business sector in the country
cannot remain calm and needs to prepare for the adverse situation and possible shocks from
both the domestic and foreign markets. The crisis is global and anxiety is affecting more and
more countries around the world. And with many of them, Bulgaria's economic and trade ties
are very strong and a number of Bulgarian enterprises depend on these economic bonds, which
play an important role in the country’s GDP growth, lower unemployment and higher incomes.
In the video conference with the leaders of Israel, Hungary, Romania, Italy, Austria and,
Bulgarian Prime Minister Boyko Borissov said that "it is important for the world to brace itself
and find a solution because the economic and financial crisis are knocking on the door." The
Special Crisis Staff has promised that the measures against the spread of the coronavirus will
not be such as to damage the business. Bulgarian business is not a lonely island and cannot be
left unaffected by global processes. But it is also flexible and adaptable. Smaller enterprises, as
more than 90% of Bulgarian businesses are, are more easily and quickly able to adjust to a new
reality, depending on the specific circumstances. Either way, the officially expected economic
growth of 3.3% will not be achieved and will fall to 3%. This will be due to the exhaustion of
labour market opportunities, the volatile domestic and export consumption and the timid foreign
investment. The likely decline is not small and might bring confusion in the economy and in
the country as a whole.
      Meeting in emergency session late at night on March 12, Bulgarian Prime Minister Boiko
Borissov’s Cabinet agreed to ask Parliament to declare a national State of Emergency to deal
with Covid-19 new coronavirus. On March 13 the Bulgarian parliament voted unanimously to
declare a state of emergency until April 13 to contain the spread of coronavirus after the number
of confirmed cases in the country more than tripled to 23. Under the emergency rules schools,
universities and kindergartens will remain closed until March 29 and visits to gyms, cinemas,
bars, restaurants and shops except for supermarkets and pharmacies will be banned.

      Businesses are encouraged to allow employees to work remotely while students will take
classes online. In his statement Borissov estimated that the losses to Bulgaria’s economy
because of Covid-19 could amount to three billion leva. How the situation will develop is hard
to predict since it is quite dynamic and already depend on variety of factors which are
unfortunately beyond the authority of the government.

                                                4