Bulgaria Business Forecast Report Q3 2014

  • May 2014
  • -
  • Business Monitor International
  • -
  • 46 pages

Core Views

Political risk in Bulgaria is on the rise, amid legislative deadlock. High unemployment and political disillusionment will leave social tensions elevated, while traditionally peripheral political parties could grow in influence. Bulgaria’s economic recovery will be weak in 2014 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. Bulgaria’s economic rebalancing will continue to play out over the coming years, keeping the current account in surplus until 2018. Although the surplus is set to shrink, weak domestic demand conditions
will preclude a more rapid return to a deficit.

Major Forecast Changes

We have made no major forecast changes this quarter.

Table Of Contents

Bulgaria Business Forecast Report Q3 2014
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 Ratings .. 7
Domestic Politics . 8
Political Risk To Climb Over The Coming Years ..8
Political risk in Bulgaria is on the rise, amid legislative deadlock. High unemployment and political disillusionment will leave social
tensions elevated, while traditionally peripheral political parties could grow in influence.
TABLE: POLITICAL OVERVIEW .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 already joined the bloc, Bulgaria has a number of challenges it must
yet tackle to improve its business environment and help ensure a more stable economic and political situation over the next ten years.
Below we outline these challenges and possible scenarios for political change.
Chapter 2: Economic Outlook . 13
SWOT Analysis 13
BMI Economic Risk Ratings 13
Economic Activity 14
Weak Domestic Demand Conditions To Persist 14
Bulgaria's economic recovery will be weak in 2014 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 despite exports of
goods and services offering a silver lining for the economy in light of the eurozone recovery.
table: GDP ..14
Fiscal Policy .. 16
Expansionary Fiscal Policy On A Sustainable Path 16
Economic and political dynamics in Bulgaria strongly suggest that the recent departure from fiscal austerity will remain in place, leading
to a gradual widening of the nominal fiscal deficit over the coming years. Nevertheless, we do not envision major fiscal slippage or a
deteriorating credit profile for the sovereign, as Bulgaria will continue to have among the lowest fiscal deficits and public debt stocks in
the region.
table: Fiscal Policy ..16
Balance Of Payments .. 18
No Rapid Return To Current Account Deficit ..18
Bulgaria's economic rebalancing will continue to play out over the coming years, keeping the current account in surplus until 2018.
Although the surplus is set to shrink, weak domestic demand conditions will preclude a more rapid return to a deficit. We note, however,
that rising geopolitical tensions could affect Bulgaria's trade outlook over the coming years, given the country's high dependence on fuel
imports from Russia.
table: Current Account ..18
Monetary Policy .. 20
Deflationary Spiral Risks Loom Large .20
Prolonged deflation threatens to jeopardise Bulgaria's nascent economic recovery, potentially delaying improvement in domestic
demand. With limited policy options available to the central bank, we note considerable downside risks to our 1.4% real GDP growth
forecast this year.
table: Monetary Policy 20
Regional Exchange Rate Outlook .. 21
EUR Rally Will Hit The Buffers ..21
TABLE: Eurozone Currency Forecast 21
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.
TABLE: Long-Term Macroeconomic Forecasts .23
Chapter 4: Business Environment 27
SWOT Analysis 27
BMI Business Environment Risk Ratings .. 27
Business Environment Outlook 28
Institutions . 28
TABLE: BMI BUSINESS AND OPERATION RISK RATINGS 28
TABLE: BMI LEGAL FRAMEWORK RATING .29
Infrastructure 30
TABLE: LABOUR FORCE QUALITY ..31
Market Orientation . 32
TABLE: EMERGING EUROPE - ANNUAL FDI INFLOWS ..32
TABLE: TRADE AND INVESTMENT RATINGS 33
Operational Risk . 34
Chapter 5: Key Sectors 35
Defence 35
TABLE: Defence Expenditure 35
Freight Transport 39
TABLE: Road Freight, 2011-2018 .40
TABLE: Inland Waterway Freight, 2011-2018 41
TABLE: Air Freight, 2011-2018 ..41
TABLE: Maritime Freight, 2011-2018 ..41
tABLE: Rail Freight, 2011-2018 41
Other Key Sectors . 43
table: Telecoms Sector Key Indicators .43
table: Pharma Sector Key Indicators ..43
table: Autos Sector Key Indicators ..43
table: Infrastructure Sector Key Indicators 44
table: Food and Drink Sector Key Indicators ..44
table: Oil and Gas Sector Key Indicators .44
Chapter 6: BMI Global Assumptions .. 45
Global Outlook . 45
Growth Increasingly Polarised ..45
Table: Global Assumptions ..45
Table: Developed States, Real GDP GrowtH, % 46
Table: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, % .. 46
Table: Emerging Markets, Real GDP Growth, % ..47

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