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Bulgaria Country Risk Report Q1 2017

  • November 2016
  • -
  • Business Monitor International
  • -
  • 41 pages

Core Views

Bulgaria's GDP growth in the coming years will recover but stay modest by emerging market standards. 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 are forecasting 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. Bulgarian goods export will slow in the coming years as demand from key trading partners will weaken as a consequence of the Brexit referendum. Nevertheless, we expect services exports to perform strongly, as the county's tourism sector stands to benefit from political instability 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 and Cyprus) in the European Union. Major Forecast Changes We have revised up our GDP growth forecast, as the economic fallout emanating from Brexit has not been as severe as we initially assumed. We now forecast the Bulgaria's economy to grow by 3.2% in 2016 and 2.8% in 2017 and 2018.

Table Of Contents

Bulgaria Country Risk Report Q1 2017
Executive Summary 5
Core Views 5
Major Forecast Changes 5
Key Risks5
Chapter 1: Economic Outlook7
SWOT Analysis 7
BMI Economic Risk Index 7
Economic Growth Outlook 8
Private Consumption And Construction To Offset Weaker Export Growth 8
Weak foreign demand will weigh on Bulgarian economic growth over the next two years Nevertheless, a strong outlook for private
consumption and rebounding fixed investment means that the economy will continue to grow at a healthy clip
GDP By Expenditure Outlook 9
TABLE: GDP GROWTH FORECASTS 9
TABLE: PRIVATE CONSUMPTION FORECASTS 9
TABLE: GOVERNMENT CONSUMPTION FORECASTS10
TABLE: FIXED INVESTMENT FORECASTS 10
TABLE: NET EXPORTS FORECASTS 10
External Trade And Investment Outlook 10
C/A Surplus To Narrow, Competitiveness A Concern 10
Weaker EU demand and accelerating import growth will gradually reduce Bulgaria's current account surpluses over the next two years
While near-term surpluses are not at risk, the country's deteriorating regional competitiveness will push the current account into longterm
deficits
Outlook On External Position 12
TABLE: CAPITAL AND FINANCIAL ACCOUNT BALANCE 12
TABLE: TOP-FIVE EXPORTS and IMPORTS 12
TABLE: CURRENT ACCOUNT BALANCE FORECASTS13
Fiscal Policy And Public Debt Outlook14
AQR Results Bolster Sovereign Profile 14
Bulgaria will remain committed to fiscal consolidation over the next two years, which will see the government's budget deficit
progressively narrow and the public debt load remain stable Furthermore, systemic risks in the country's banking sector have subsided,
suggesting no need for additional recapitalisation in the coming years
Structural Fiscal Position 15
TABLE: FISCAL AND PUBLIC DEBT FORECASTS 15
TABLE: FISCAL POLICY16
Monetary Policy 17
Deflation To Turn Into Inflation In 2017-2018 17
After a fourth consecutive year of deflation in 2016, we expect Bulgarian inflation to make a comeback in 2017 and 2018 This
comeback will be driven by increasing global oil prices, a tight labour market and a strong outlook for private consumption
Monetary Policy Framework 18
TABLE: MONETARY POLICY FORECASTS18
Chapter 2: 10-Year Forecast 21
The Bulgarian Economy To 202521
The Decade Of Weakness 21
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 21
Contents
Chapter 3: Political Outlook 23
SWOT Analysis 23
BMI Political Risk Index23
Domestic Politics24
Presidential Elections: No Clear Frontrunner, But Government Stable 24
We expect a close race in Bulgaria's upcoming presidential elections and anticipate that the vote will be decided between GERB
candidate Tsetska Tsacheva and BSP candidate Rumen Radev While the outcome of the vote is too close to call, we do not expect the
mainly ceremonial presidency to significantly alter the policy of the current Borissov government
TABLE: POLITICAL OVERVIEW 24
Long-Term Political Outlook 26
Challenges Remain Despite EU Membership26
Bulgaria will continue struggling to reduce corruption in its institutions, as it seeks to improve governance standards in line with EU
norms and make its business environment more attractive to foreign investors Other major challenges include mitigating demographic
decline and geopolitical risks, the latter stemming from its proximity to Russia
Chapter 4: Operational Risk 29
Operational Risk 29
TABLE: OPERATIONAL RISK 29
Business Crime 30
TABLE: BUSINESS RESPONSE TO RISK IN BULGARIA 30
Government Intervention 32
TABLE: PERSONAL INCOME TAX 32
TABLE: BUSINESS TAXES 33
Chapter 5: BMI Global Macro Outlook37
Global Macro Outlook 37
Austerity Has Peaked, But Populism Is Not Yet Policy 37
TABLE: GLOBAL ASSUMPTIONS 37
TABLE: DEVELOPED STATES, REAL GDP GROWTH, % 38
TABLE: EMERGING MARKETS, REAL GDP GROWTH, % 39
TABLE: BULGARIA MACROECONOMIC DATA and FORECASTS 41

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