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Bulgaria Country Risk Report Q1 2016

Bulgaria Country Risk Report Q1 2016

Core Views

Bulgaria’s GDP growth in the coming years will stay modest and amount to 1.5% in 2015 and 1.7% in 2016.

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 forecasting Bulgaria’s budget deficit to remain under 3% 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 future due to higher eurozone demand and a growing influx of international tourists.

By 2016 Bulgaria’s price levels will start growing again, after experiencing the deepest deflationary period (after Greece and Cyprus) in the EU.


Executive Summary
Core Views
Key Risks
Chapter 1: Political Outlook
SWOT Analysis
BMI Political Risk Index
Domestic Politics
Political Fragmentation And Corruption Thwarting Reforms
Rising political fragmentation and parliamentary deadlock will continue to halt Bulgaria's reform process. Due to the slow progress, the
European Commission will continue its supervision programme of Bulgaria and disburse only part of the total allocated European Union
Structural and Development Funds in the years ahead, hampering the country's growth prospects.
TABLE: POLITICAL OVERVIEW
Long-Term Political Outlook
Challenges Remain Despite EU Membership
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 2: Economic Outlook
SWOT Analysis
BMI Economic Risk Index
Economic Growth Outlook
Slow Growth Ahead
While Bulgaria will continue benefiting from the continued cyclical upswing in the eurozone, real GDP growth will stay modest over
the next few years. Private consumption will continue to be the main driver of growth, while contributions from capital investment and
government consumption will remain negligible in the years ahead.
GDP By Expenditure Outlook
TABLE: LONG-TERM MACROECONOMIC FORECASTS
TABLE: PRIVATE CONSUMPTION FORECASTS
TABLE: GOVERMENT EXPENDITURE FORECASTS
External Trade and Investment Outlook
Tourism And Invested Capital Continuing To Benefit Current Account
Booming tourism receipts and the recovering eurozone demand will keep Bulgaria's current account in surplus. We forecast the
surplus to reach 1.3% of GDP in 2015, followed by 1.4% of GDP in 2016. While Bulgaria has one of the EU's largest net international
investment positions, a healthy stock of FDI means this is unlikely to pose a threat to financial stability.
TABLE: FIXED INVESTMENT FORECASTS
TABLE: NET EXPORT FORECASTS
Outlook On External Position
TABLE: CURRENT ACCOUNT COMPONENTS
TABLE: CAPITAL & FINANCIAL ACCOUNT BALANCE
TABLE: TOP 5 IMPORTS AND EXPORTS
Fiscal Policy And Public Debt Outlook
Long Path Towards Balanced Budget
Bulgaria's budget deficit will remain below 3.0% of GDP over the coming years, ensuring the public debt level remains modest and the
country's risk profile remains broadly positive. However, fragility in the banking sector poses the biggest risk to Bulgaria's stability.
TABLE: FISCAL POLICY
Monetary Policy
Inflation To Make A Comeback
Bulgarian price growth will rise for the first time in two years from 2016, where we forecast inflation to increase by 1.1%, followed by
1.8% in 2017. Imported eurozone inflation and rising private consumption will be key factors behind the turnaround.
Monetary Policy Framework
Chapter 3: 10-Year Forecast
The Bulgarian Economy To 2024
A Decade Of Weakness
The Bulgarian economy will 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
Chapter 4: Operational Risk
SWOT Analysis
Operational Risk Index
Operational Risk
TABLE: OPERATIONAL RISK
Education
TABLE: EMERGING EUROPE - EDUCATION RISK
Government Intervention
TABLE: EMERGING EUROPE - GOVERNMENT INTERVENTION RISKS
Chapter 5: BMI Global Macro Outlook
Global Outlook
Exit The Dragon
TABLE: GLOBAL ASSUMPTIONS
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %
TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, %
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %

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