/ world today news/ If we have to rank in depth the dangers that deflation poses to the Bulgarian economy, I would put consumption, which has been shrinking for many months, in first place.
Due to low incomes and expectations of economic agents, households and business representatives, things are getting worse. As much as they can, people accumulate reserves and do not rush to spend their money. This signals an increasing risk to the business, which is the second negative impact. Businesses are shrinking investment, banks are already maxing out lending, and in the end, what will fuel the economy? It cannot be powered.
Next, I would definitely put the problem of unemployment. It is still quite high, and if we add the permanently unemployed and discouraged, it reaches 500,000 people. The Bulgarian national economy cannot afford more unemployed people. Fewer and fewer workers are supporting the unemployed, including contributing to retirement, etc.
Apart from this, there is another very unpleasant risk that we underestimate. Deflation, as the worst possible option for deforming a national economy, has this property that once you get into its trap, getting out of there can be very difficult. Here the question arises why we had to wait 17 months to reach the conclusion that we are the second country in Europe with the highest deflation.
Speaking of taking into account the risks of deflation, the rulers must first do the math, because measures to counteract deflation can come from the government and the parliament. The social partners can propose measures, but the solution comes from there. From this point of view, the management program of this government must be reshaped immediately. In the part about the economy, it should include a package of anti-deflationary measures and a package for growth, which are not there now. This shows that the underestimation and ignoring of the deflation problem continues, and perhaps continues with ignorance and illiteracy. I’m amazed that non-casual, graduate economists say, “That’s not a problem. We’ll get over deflation by momentum, on our own.” There is no such example in history. If we go back and look at the deflationary crises of 1929 or the end of the last century, we will see that time passes and the equilibrium is restored, growth begins. But that means 10-15 years pass. Do we have to wait that long, we live in a modern world…
Analyzes are still being made as to why Bulgaria is in second place in terms of deflation on a European scale, but I think it all started at that moment, on the eve of the crisis, when the debts of companies and people suddenly increased. When there was readily available credit and then when they suddenly closed access to credit. As a result of this approach, the ground was created for the development of deflation. The second reason is the fact that we were the most disciplined, in the first five countries that maintained a low budget deficit after 2008, through the limitation of spending. Now it turns out that the policy of harsh budget restrictions is a direct cause of the inflation that Bulgaria is suffering from. If we were among the top performers, then deflation should hit us first, and that’s how it happened.
The current budget has buffers that can mitigate deflation, but I don’t know if some changes need to be made. For example, why should we spend BGN 1 billion on the panels, when at least half of them could go to those industries that create added value and increase competitiveness. Another example is that of the external debt that is taken this year, a serious reserve remains under the control of the Prime Minister and the Minister of Finance. Let this reserve be redirected on a market basis to medium and small businesses, with priority to lagging regions. For this, we do not need to wait for more money from somewhere, it is provided in the budget. The government must realize the importance, seriousness and depth of the danger that the deflationary spiral hides.
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Prof. Krastyo Petkov, Chairman of the Union of Economists in Bulgaria.
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What strategies can Bulgaria implement to combat the negative effects of deflation on its economy?
As a website editor for world-today-news.com, I am pleased to present an interview with two guests discussing the dangers of deflation facing Bulgaria. Our first guest is Prof. Krastyo Petkov, Chairman of the Union of Economists in Bulgaria, who has extensive knowledge and experience in the field of economics. Our second guest is a reputable expert on macroeconomic policy and financial markets, who prefers to remain anonymous due to professional confidentiality.
Section 1: Understanding Deflation
Prof. Petkov, could you please elaborate on the dangers that Bulgaria currently faces due to deflation?
Prof. Krastyo Petkov: Certainly. Deflation is a phenomenon where prices of goods and services decrease over time, leading to a reduction in the purchasing power of money. In the case of Bulgaria, we have been experiencing deflation for the past 17 months. This has several negative impacts on our economy. Firstly, consumers are hesitant to spend due to low incomes and expectations. As a result, businesses suffer shrinking demand, leading to a decrease in investment and employment. Additionally, deflation can trap an economy for an extended period, making it difficult to recover.
Anonymous Guest, how do you view the situation in Bulgaria concerning deflation? Do you think the government and other stakeholders are taking this issue seriously enough?
Anonymous Guest: Deflation is certainly a concern, but it’s not an uncommon problem for countries like Bulgaria. The key is to understand the causes and develop appropriate policies to address them. In my opinion, the government must prioritize growth-oriented measures, as well as take into account the impact of deflation on different sectors of the economy. There should be more focus on creating jobs and enhancing competitiveness.
Section 2: Causes of Deflation
Prof. Petkov, you mentioned that the debts of both companies and individuals increased before the crisis. Can you expand on this? How did this contribute to the current situation?
Prof. Krastyo Petkov: Sure. When credit became readily available, many companies and individuals took on significant debt. However, when the credit market suddenly closed
