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Bulgaria Country Risk Report Q2 2015

Bulgaria Country Risk Report Q2 2015

Core Views

Bulgaria's debt and deficit will continue to increase over the comingyears, having grown considerably in 2014 due to a bank bailoutand weak revenue growth. Nevertheless, the country will remainon a sustainable fiscal trajectory due in part to its exceptionallylow public load.

Bulgaria's economic recovery will be weak in 2015 as domestic demandremains elusive. Deflation and political uncertainty compoundalready weak confidence levels among businesses and mean thata sharp bounce back for the economy is unlikely.

We are forecasting Bulgaria's current account to return to deficitin 2015 on account of the economy's exposure to the eurozone asboth an export market and remittance origination point.

Major Forecast Changes

We have revised down our 2015 and 2016 headline real GDP growthforecasts to 0.8% and 1.2% from 1.9% and 2.4% respectively toreflect a chronic lack of fixed investment, stagnant wage growthand ongoing private sector deleveraging.

We have downgraded our 2014 inflation forecasts for Bulgaria toreflect deflationary pressures which have endured longer than weoriginally anticipated as the country's internal devaluation continues.

For 2015 and 2016, we have revised down year-end forecasts to1.1% deflation and 0.3% inflation respectively.


Executive Summary
Core Views
Major Forecast Changes
Key Risks To Outlook
Chapter 1: Political Outlook
SWOT Analysis
BMI Political Risk Index
Domestic Politics
Gas Hub Ambitions Unrealistic
Bulgaria's energy security will attract increasing interest from Western powers over the coming years due to its dependence on Russian
gas. However, Bulgaria's poor business environment will prevent it from being able to develop the requisite infrastructure to become a
regional gas hub in its own right.
TABLE: Political Over view
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.
Chapter 2: Economic Outlook
SWOT Analysis
BMI Economic Risk Index
Economic Activity
Struggling To Find Engines Of Growth
The Bulgarian economy will grow at a sluggish pace over the coming years as a painful internal devaluation continues. Elevated real
interest rates driven by entrenched deflation will exacerbate the high private sector debt burden and curtail a recovery in domestic
demand.
TABLE: GDP Contributi on To Growth
Monetary Policy
Deflation Until 2016
Bulgaria will remain in deflation throughout 2015 as weak supply-side pressures counteract increasingly expansionary ECB monetary
policy. The restraints of the lev's peg to the euro will mean that the authorities continue to pursue a painful internal devaluation as a
means of regaining competitiveness.
TABLE: Monetary Policy
Fiscal Policy
Fiscal Risks To Remain Benign
Bulgaria's low public sector debt load and historically cheap borrowing costs mean we see few risks to the country's fiscal stability over
the next two years. Even after a fiscal blowout in 2014 to fund a bank bailout, Bulgaria's debt load remains extremely low by regional
standards.
TABLE: Fiscal Policy
Balance Of Payments
C/A Deficit Inevitable
Bulgaria's entrenched lack of export competitiveness, combined with declining inbound current transfers, will push the current account
into deficit in 2015, where it will remain for the foreseeable future.
TABLE: Current Account
Regional Outlook
Benign Deflation To Support Households
Deflationary trends spreading across Europe appear benign, driven predominantly by low oil and food prices. These factors should be
net positive for household consumption. While demand-pull pressure is subdued at present, it could begin to build in Central Europe
from H215 onwards.
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
Availability Of Labour
TABLE: Emerging Europe - Availability of Labour Risk
TABLE: Lab our Force Empl oyment By Sect or ('000)
TABLE: Top 10 Source Countries For Migra nt Workers
Crime Risk
TABLE: Emerging Europe - Crime Risk
TABLE: Crime Statistics
Chapter 5: Key Sectors
Automotives
TABLE: Commercial Vehicle Mar ket - Hist orical Data And Forecasts
TABLE: Aut os Total Mar ket - Hist orical Data And Forecasts
Food & Drink
TABLE: Food Consu mpti on Indicat ors - Hist orical Data & Forecasts
TABLE: Mass Grocer y Retail Sales By Format - Hist orical Data & Forecasts
tABLE: Alc oholic Dri nks Value /Volu me Sales , Producti on & Trade - Hist orical Data & Forecasts
Other Key Sectors
Table: Telecoms Sector Key Indicators
Table: Defence and Security Sector Key Indicators
Table : Phar ma Sect or Ke y Indicat ors
Table: Oil and Gas Sector Key Indicators
Table: Infrastructure Sector Key Indicators
Table : Freight Ke y Indicat ors
Chapter 6: BMI Global Assumptions
Global Outlook
Weaker EMs To Weigh On Growth
Table: Global Assumptions
Table : Devel oped States , Real GDP Growt H, %
Table : BMI VERSUS BLOOM BERG CON SENSUS REAL GDP GROWTH FORECASTS, %
Table : Emergi ng Mar kets , Real GDP Growth , %

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