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Bulgaria Country Risk Report Q2 2016

  • February 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 2.8% in 2016 and 2.5% 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 forecast Bulgaria’s budget deficit to remain under 3.0% of GDPin the years ahead and although the overall debt level will rise, itwill stay at a low level compared to regional peers.

Bulgaria will generate a trade surplus in the coming years due to highereurozone demand and a growing influx of international tourists.In 2016 Bulgaria’s price levels will start growing again, after experiencingthe deepest deflationary period (after Greece and Cyprus)in the European Union.Major Forecast ChangesWe have revised up our GDP growth forecasts, as we expect exports,manufacturing, and private consumption to do particularly well.

We now estimate Bulgaria’s economy expanded by 2.3% in 2015, upfrom the previous estimate of 1.5%. We forecast GDP growth toamount to 2.8% in 2016 and 2.5% in 2017, up from 1.7% and 1.9%,respectively.Due to falling oil prices we have revised down our inflation forecastsfor Bulgaria. For 2015 we now estimate deflation to have amountedto 0.5%, from previously 0.3%. For 2016 we forecast price growthto average to 0.5%, down by 0.6pp, and for 2017 we expect pricesto grow by 1.5%, instead of originally 1.8%.

Table Of Contents

Bulgaria Country Risk Report Q2 2016
Executive Summary 5
Core Views5
Major Forecast Changes5
Key Risks5
Chapter 1: Economic Outlook 7
SWOT Analysis 7
BMI Economic Risk Index 7
Economic Growth Outlook 8
Household Spending And Exports To Boost Growth8
Improving internal and external economic factors mean we have revised Bulgaria's GDP growth upwards for 2016 and 2017 While the
export sector will continue to benefit from a cyclical upswing in the EU, private consumption will be the driving factor behind stronger
economic growth
GDP By Expenditure Outlook 9
TABLE: GOVERMENT EXPENDITURE FORECASTS9
TABLE: LONG-TERM MACROECONOMIC FORECASTS9
TABLE : PRIVATE CONSUMPTION FORECASTS10
TABLE: FIXED INVESTMENT FORECASTS10
TABLE: NET EXPORT FORECASTS10
Fiscal Policy And Public Debt Outlook 11
Stable Public Debt Outlook11
With the budget deficit to stay below 30% of GDP over our forecast period to 2025, Bulgaria's public debt ratio will remain one of the
lowest in the EU
Structural Fiscal Position 12
TABLE: REVENUE AND EXPENDITURE CATEGORIES13
TABLE: FISCAL POLICY13
External Trade And Investment Outlook 13
Lack Of Investment To Drag On Export Growth13
Bulgaria's export sector will benefit from a cyclical upswing in the eurozone in 2016 and 2017 However, in order to achieve sustained
export growth and increase competitiveness in the years ahead, the country will need to attract more FDI inflows and implement
structural labour market reforms
Outlook On External Position 15
TABLE: CAPITAL and FINANCIAL ACCOUNT BALANCE16
TABLE: TOP 5 IMPORTS and EXPORTS16
Monetary Policy 17
Low Oil Prices To Squeeze Inflation17
After the Bulgarian National Bank cut its main policy rate to 000%, we do not expect it to move into negative territory in the quarters
ahead Inflationary pressures will remain subdued in 2016, as falling oil prices will continue to drag down prices
Monetary Policy Framework 19
Chapter 2: 10-Year Forecast 21
The Bulgarian Economy To 2025 21
The Decade Of Weakness21
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 FORECASTS21
Chapter 3: Political Outlook 23
SWOT Analysis 23
BMI Political Risk Index 23
Domestic Politics 24
Reforms At Snails Pace24
Bulgaria's failure to push through judiciary reforms to meet EU standards will further damage its reputation among European peers Its
half-hearted political will to combat corruption and organised crime will impair future economic growth and Bulgaria's attractiveness as
an FDI destination
TABLE: POLITICAL OVERVIEW24
Long-Term Political Outlook 26
Challenges Remain Despite EU Membership26
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 29
SWOT Analysis 29
Operational Risk Index 29
Operational Risk 30
TABLE: OPERATIONAL RISK30
Trade Procedures And Governance 31
TABLE: EMERGING EUROPE-TRADE PROCEDURES AND GOVERNANCE RISK 31
TABLE: TRADE PROCEDURES BREAKDOWN32
Vulnerability To Crime 32
Chapter 5: BMI Global Macro Outlook 35
Global Macro Outlook 35
Downside Risks Gather Momentum35
TABLE: GLOBAL ASSUMPTIONS 35
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %36
TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, % 36
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %37
TABLE: MACROECONOMIC DATA and FORECASTS39

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