30.11.2022

BULGARIAN ACADEMY OF SCIENCES: SERVICES WILL BE THE MOST AFFECTED BY THE CRISIS

The structure of the Bulgarian economy allows it to be less negatively affected by economic crises in general. This suggests that the negative economic consequences caused by the military conflict in Ukraine will be smaller or at least similar to those that will be suffered by the rest of the EU countries.

This was stated by Prof. Dr. Stoyan Totev in a plenary report at an international scientific conference on the topic: "Economic development and policies: realities and perspectives. Challenges and risks in the context of overlapping crises'. It is organized by the Institute for Economic Research at the Bulgarian Academy of Sciences, with the participation of teachers, scientists and independent experts from Bulgaria, France, Romania and the Czech Republic.

The expectations for Bulgaria are that there will be no entire sectors that will be seriously affected by the crisis, and that there will be no significant changes in the country's comparative advantages. Specific industries that in their development so far have imported raw materials and products from Ukraine and Russia may have a problem, emphasized the economist from the Institute for Economic Research at the Bulgarian Academy of Sciences.

In support of his thesis, Prof. Totev cites data from the World Bank, according to which the comparative advantages of the native economy are in the export of products in the field of food, textile, sewing and metalworking industries, as well as in the export of non-metallic mineral products. The comparative advantages of products in the chemical and furniture industries and in the production of plastic and rubber products are also close to unity, he said.

With the proviso that in case of a continued stagnation in Europe as a result of the current crisis, certain industries and productions may be affected, including to change and comparative advantages, Prof. Totev emphasized that due to the low elasticity of substitution of food products, the agrarian sector should be affected to the smallest extent, in contrast to the development of high-tech industries. As long as they do not have a large participation in the processing industry in our country, it is likely that the industry will be less "affected" by the crisis compared to the average indicators for the EU countries, the economist argued.

Services are expected to be most affected by the crisis conditions, and this will also depend on the duration of the crisis itself. It is known that this sector recovers very quickly when the economic situation normalizes. A disturbing factor for Bulgaria could be the longer duration of the crisis, especially in tourism and transport.

The other big problem facing the Bulgarian economy is that, in addition to being the least competitive compared to EU countries, it is generally too energy-intensive. Therefore, in the short term, the war in Ukraine is expected to have a negative impact on industries that use natural gas, and more specifically on the realization of their production. To the extent that other EU countries will experience similar difficulties, Bulgaria cannot be expected to have serious problems at least on the European market, explained Prof. Totev.

In this sense, the economist's recommendation is to conduct a "reasonable" economic policy aimed at stimulating those industries that are characterized by the use of relatively higher technologies, but there is also a prerequisite for this based on the presence of their comparative advantages. Another possibility is in the search for development in the higher segments of the production chain, which allows to achieve relatively higher labor productivity in low-tech industries - in recent years, enterprises in Bulgaria have already improved their positions in this direction, according to Prof. Totev.