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Bulgaria Business Forecast Report Q1 2015

  • November 2014
  • -
  • Business Monitor International
  • -
  • 50 pages

Core Views

Bulgaria's debt and deficit will continue to increase over the coming years, having grown considerably in 2014 due to a bank bailout and weak revenue growth. Nevertheless, the country will remain on a sustainable fiscal trajectory due in part to its exceptionally low public load.
Bulgaria's economic recovery will be weak in 2015 as domestic demand remains elusive. Deflation and political uncertainty compound already weak confidence levels among businesses and mean that a sharp bounce back for the economy is unlikely. We are forecasting Bulgaria's current account to return to deficit in 2015 on account of the economy's exposure to the eurozone as both an export market and remittance origination point.

Major Forecast Changes

We have revised down our 2015 and 2016 headline real GDP growth forecasts to 1.9% and 2.4% from 2.5% and 3.2% respectively to reflect weaker than expected demand in key eurozone export partners. We have downgraded our 2014 inflation forecasts for Bulgaria to reflect deflationary pressures which have endured longer than we originally anticipated. For 2015 and 2016, we have revised down year end forecasts to 0.8% and 1.2%, from 1.2% and 2% respectively.

Table Of Contents

Bulgaria Business Forecast Report Q1 2015
Executive Summary 5
Core Views 5
Major Forecast Changes 5
Key Risks To Outlook 5
Chapter 1: Political Outlook 7
SWOT Analysis 7
BMI Political Risk Index 7
Domestic Politics 8
Minority Coalition: The Least Worst Option 8
Bulgaria's former Prime Minister Boiko Borisov will preside over a minority government comprising his centre-right GERB party and
the Reformist Bloc, itself made up of five small centre-right factions. However, with final coalition talks not set to take place until mid-
November, the eventual outcome from the October elections remains uncertain.
Table: Political Outlook 8
Long-Term Political Outlook 10
Challenges Remain Despite EU Membership 10
We expect EU membership to remain key to Bulgaria's long-term political outlook, helping underpin investor sentiment in the country
and steady economic growth. However, we note that despite having alre ady joined the bloc, Bulgaria faces a number of challenges to
its business environment and help ensure a more stable economic and political situation over the next ten years.
Chapter 2: Economic Outlook 13
SWOT Analysis 13
BMI Economic Risk Index 13
Economic Activity 14
Recovery On Slower Trajectory 14
Bulgaria's economic recovery will remain intact over the coming quarters, supported by brightening fixed investment picture and a
recovery in household spending. However, weak growth outlook in the country's main trading partners will ensure that growth remains
modest.
Table: GDP By Expenditure 14
Monetary Policy 16
Peg To Remain Despite Overvalued Lev 16
Bulgaria's currency board regime will remain in place over the long term thanks to broad institutional support and a large reserve buffer.
As such, the central bank will have no recourse to policy to influence the economy, the lev will remain overvalued, and the government
will resort to internal devaluation to raise export competitiveness.
Tab le: Monetar y Polic y 17
Fiscal Policy 18
Low Debt Load To Cushion Fiscal Decline 18
Bulgaria's debt and deficit will continue to increase over the coming years, having spiked considerably in 2014 due to bank bailouts and
weak revenue growth. Nevertheless, the country will remain fiscally sustainable and will continue to be able to meet its debt servicing
obligations.
Table: Fiscal Policy 18
Balance Of Payments 20
Return To C/A Deficit Unavoidable 20
Bulgaria's current account will return to deficit in 2015 against a backdrop of dismal external demand from key e urozone export
partners. However, the current account deficit will not significantly threaten Bulgaria's external stability, as the country will manage to
attract sufficient FDI to cover the shortfall.
Table: Current Account 20
Chapter 3: 10-Year Forecast 23
The Bulgarian Economy To 2023 23
More Weakness In The Next Decade 23
The Bulgarian economy is set to remain on a low growth trajectory over the next decade. Despite ongoing private sector deleveraging
we do not expect credit growth to pick-up over the next 10 years, while slower export growth, a weak business environment and a lack
of much-needed reforms will weigh on investment and economic growth.
Tab le: Long -Term Macroeconomic Forecasts 23
Chapter 4: Operational Risk 27
SWOT Analysis 27
Operational Risk Index 27
Operational Risk 28
Table: Operational Risk 28
Transport Network 29
Table: Transport Network 30
Economic Openness 34
Tab le: Economic Openness Ris k 34
Tab le: Top Five Products Exported (USDmn ) 35
Tab le: Top Five Trade Partners - Product Imports (USDmn ) 36
Chapter 5: Key Sectors 39
Infrastructure 39
Table: Construction and Infrastructure Industry Data 40
Table: Construction and Infrastructure Industry Data 41
Oil and Gas 43
Table: Oil Production 44
Table: Oil Production 44
Table: Gas Production 45
Table: Gas Production 45
Other Key Sectors 47
tab le: Pharma Sector Ke y Indicators 47
tab le: Telecoms Sector Ke y Indicators 47
table: Defence and Security Sector Key Indicators 47
table: Food and Drink Sector Key Indicators 48
table: Autos Sector Key Indicators 48
tab le: Freight Ke y Indicators 48
Chapter 6: BMI Global Assumptions 49
Global Outlook 49
Reality Check: Uncertainty Reigns 49
Tab le: Globa l Assumptions 49
Tab le: Developed States , Rea l GDP Growt H, % 50
Tab le: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, % 50
Tab le: Emerging Mar kets , Rea l GDP Growth , % 51

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