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Bulgaria Country Risk Report Q4 2016

  • August 2016
  • -
  • Business Monitor International
  • -
  • 39 pages

Core Views


Bulgaria's GDP growth in the coming years will recover but staymodest by emerging market standards. We forecast the economyto grow by 2.4% in 2016 and 2.6% in 2017.Private consumption will continue to be the main economic growthdriver, as Bulgaria remains unable to attract foreign investment,which has bolstered GDP-growth in the past.We are forecasting Bulgaria's budget deficit to remain under 3.0%of GDP in the years ahead and although the overall debt level willrise, it will stay at a low level compared to regional peers.Bulgarian goods export will slow in the coming years as demandfrom key trading partners will weaken as a consequence of the Brexitreferendum. Nevertheless, we expect services exports to performstrongly, as the county's tourism sector stands to benefit from politicalinstability and security threats in rival tourist destinations.By the end of 2016, Bulgaria's price levels will start growing again,after experiencing the deepest deflationary period (after Greece andCyprus) in the European Union.



Major Forecast Changes

We have revised down our GDP growth forecast, as the Brexit referendumwill entail weaker European demand for Bulgarian goodsexports. We now forecast the Bulgaria's economy to grow by 2.4%in 2016 and 2.6% in 2017.By virtue of weakening goods exports we changed our current accountforecast from 1.9% of GDP to 1.8% and from 1.9% to 1.6%in 2016 and 2017, respectively.

Table Of Contents

Bulgaria Country Risk Report Q4 2016
Executive Summary.. 5
Core Views...5
Major Forecast Changes.5
Key Risks.5
Chapter 1: Economic Outlook.. 7
SWOT Analysis... 7
BMI Economic Risk Index.. 7
Economic Growth Outlook 8
Brexit Headwinds To Dampen Growth..8
The UK's vote to leave the EU and the resulting deceleration in eurozone growth will reduce Bulgaria's European trade and investment
volumes and negatively impact real GDP growth over the coming years. We have revised down our real GDP growth forecasts for 2016
and 2017, and note continued uncertainty in Bulgaria's economic outlook over the next few years.
GDP By Expenditure Outlook 9
TABLE: GDP GROWTH FORECASTS..9
TABLE: PRIVATE CONSUMPTION FORECASTS9
TABLE: GOVERNMENT CONSUMPTION FORECASTS.9
TABLE: FIXED INVESTMENT FORECASTS..10
TABLE: NET EXPORTS FORECASTS10
Fiscal Policy And Public Debt Outlook.. 10
Fiscal Consolidation To Continue Despite Growth Slowdown.10
While the fallout from the Brexit vote will weigh on real GDP and government revenue growth in Bulgaria over the next two years,
we believe that the impact on the country's budget deficit will be marginal due to the government's ongoing commitment to fiscal
consolidation.
Structural Fiscal Position 12
TABLE: FISCAL AND PUBLIC DEBT FORECASTS...12
TABLE: FISCAL POLICY.13
External Trade And Investment Outlook 13
Declining Goods Trade To Shrink Current Account Surpluses13
Slowing real GDP growth across Europe post-Brexit will reduce Bulgaria's current account surplus in the years ahead, as the country
stands to lose from weaker trade volumes with its European trading partners. However, as goods trade decreases, we believe that
increasing services exports from the country's tourism sector will prevent a more severe deterioration in the current account, implying
few risks to the currency peg and financial account.
Outlook On External Position.. 14
TABLE: CAPITAL and FINANCIAL ACCOUNT BALANCE.15
TABLE: TOP 5 EXPORTS and IMPORTS...15
TABLE: CURRENT ACCOUNT BALANCE FORECASTS...16
Chapter 2: 10-Year Forecast... 17
The Bulgarian Economy To 2025 17
The Decade Of Weakness.17
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 FORECASTS.17
Chapter 3: Political Outlook... 19
SWOT Analysis. 19
BMI Political Risk Index... 19
Domestic Politics 20
Government Moving Right To Neutralise Opposition20
While the passing of a series of highly contested parliamentary bills will spark tensions in Bulgaria's Muslim communities, the support for
Prime Minster Boyko Borissov's government remains unfettered, which means that we believe that the government will serve its full term
till the end of 2017.
TABLE: POLITICAL OVERVIEW.20
Long-Term Political Outlook... 21
Challenges Remain Despite EU Membership.21
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 challeng es to
its business environment and help ensure a more stable economic and political situation over the next 10 years.
Chapter 4: Operational Risk... 25
SWOT Analysis. 25
Operational Risk Index 25
Operational Risk... 26
TABLE: OPERATIONAL RISK.26
Market Size And Utilities . 27
TABLE: EMERGING EUROPE-MARKET SIZE AND UTILITIES RISK..27
Labour Costs 31
TABLE: LABOUR REGULATIONS GOVERNING FLEXIBILITY OF WORKFORCE... 32
Chapter 5: BMI Global Macro Outlook... 35
Global Macro Outlook.. 35
Brexit To Hit Global Growth.35
TABLE: GLOBAL ASSUMPTIONS..35
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %36
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %...37
TABLE: MACROECONOMIC DATA and FORECASTS..39

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