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Bulgaria Country Risk Report Q3 2016

  • May 2016
  • -
  • Business Monitor International
  • -
  • 47 pages

Core Views Bulgaria's GDP growth in the coming years will recover but stay modest by emerging market standards. We forecast the economy to grow by 2.5% in 2016 and 2.8% in 2017. Private consumption will continue to be the main economic growth driver, as Bulgaria remains unable to attract foreign investment, which has bolstered GDP growth in the past. We forecast Bulgaria's budget deficit to remain under 3.0% of GDP in the years ahead and although the overall debt level will rise, it will stay at a low level compared to regional peers. Bulgaria will generate a trade surplus in the coming years due to higher eurozone demand and a growing influx of international tourists. In 2016 Bulgaria's price levels will start growing again, after experiencing the deepest deflationary period (after Greece and Cyprus) in the EU. Major Forecast Changes We have revised down our GDP growth forecast, as weaker EU funds absorption in the next two years will contribute less to economic growth. We now forecast the Bulgaria's economy to grow by 2.5% in 2016 and 2.8% in 2017.

Table Of Contents

Bulgaria Country Risk Report Q3 2016
Executive Summary 5
Core Views5
Major Forecast Changes 5
Key Risks5
Chapter 1: Economic Outlook 7
SWOT Analysis 7
BMI Economic Risk Index 7
Economic Growth Outlook 8
Private Consumption And Investment To Drive Growth8
While Bulgaria's economy grew by an estimated 30% in 2015, we expect growth to slow in 2016 and 2017 This will reflect weaker EU
fund absorption, which will curb gross fixed investment's contribution to GDP growth, and decreasing net exports amid an increase in
imports fuelled by domestic consumption
GDP By Expenditure Outlook 9
TABLE: LONG-TERM MACROECONOMIC FORECASTS 9
TABLE: PRIVATE CONSUMPTION FORECASTS10
TABLE: GOVERMENT EXPENDITURE FORECASTS10
TABLE: FIXED INVESTMENT FORECASTS10
TABLE: NET EXPORT FORECASTS10
Fiscal Policy And Public Debt 11
Tax Reform Supporting Fiscal Stance11
Bulgaria's budget deficit of 29% of GDP in 2015 is expected to narrow in 2016 and 2017, due to enhanced tax compliance, and more
prudent government spending
Structural Fiscal Position 13
TABLE: REVENUE AND EXPENDITURE CATEGORIES13
TABLE: FISCAL POLICY13
External Trade And Investment Outlook 15
Current Account Surpluses To Shrink In The Years Ahead15
Bulgaria's current account will remain in surplus in 2016 and 2017, as a strong tourism sector keeps the services account in surplus
However, we have slightly downgraded our current account surplus forecasts, as exports will grow more slowly than we originally
expected and primary investment outflows continue to increase as the economy improves
Outlook On External Position 16
TABLE: CAPITAL and FINANCIAL ACCOUNT BALANCE17
TABLE: TOP 5 IMPORTS and EXPORTS17
Monetary Policy 18
Oil Price Rally To Boost Inflation18
With demand-side inflationary pressures likely to remain weak in Bulgaria, price pressures on the supply side will boost to the overall
inflation outlook An oil price rally will substantially push up Bulgarian inflation from the second half of 2016, and, we have revised up our
inflation forecasts from 05% to 12% in 2016 and 15 % to 18% in 2017
Monetary Policy Framework 20
Chapter 2: 10-Year Forecast 23
The Bulgarian Economy To 2025 23
The Decade Of Weakness23
The Bulgarian economy will remain on a relatively low growth trajectory over the next decade Despite ongoing private sector
deleveraging we do not expect credit growth to pick up considerably 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 FORECASTS23
Chapter 3: Political Outlook 25
SWOT Analysis 25
BMI Political Risk Index 25
Domestic Politics 26
Closure Of The Western Balkan Route To Increase Migration Pressures26
Migratory pressures in Bulgaria will increase as a result of the deal between the EU and Turkey to resolve the migrant crisis and the
subsequent closure of the Western Balkan route As a result, far right parties could regain electoral support, implying a greater risk of
political unrest and social tensions in Bulgaria
TABLE: POLITICAL OVERVIEW26
Long-Term Political Outlook 28
Challenges Remain Despite EU Membership28
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 faces a number of challenges to its
business environment and help ensure a more stable economic and political situation over the next 10 years
Chapter 4: Operational Risk 31
SWOT Analysis 31
Operational Risk Index 31
Operational Risk 32
TABLE: OPERATIONAL RISK32
Availability Of Labour 33
TABLE: EMERGING EUROPE - AVAILABILITY OF LABOUR RISK33
TABLE: LABOUR FORCE EMPLOYMENT BY SECTOR ('000)34
Economic Openness 37
TABLE: TOP FIVE IMPORT PARTNERS and PRODUCT IMPORTS, 2010-2014, USDMN 38
TABLE: FREE TRADE AGREEMENTS39
Chapter 5: BMI Global Macro Outlook 43
Global Macro Outlook 43
Tentative Stability, But New Risks Emerging43
TABLE: GLOBAL ASSUMPTIONS43
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %44
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %45
TABLE: MACROECONOMIC DATA and FORECASTS47

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