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Bulgaria Country Risk Report Q2 2016

Bulgaria Country Risk Report Q2 2016

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 Changes

We have revised up our GDP growth forecasts, as we expect exports,manufacturing, and private consumption to do particularly well. Wenow 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%.


Executive Summary
Core Views
Major Forecast Changes
Key Risks
Chapter 1: Economic Outlook
SWOT Analysis
BMI Economic Risk Index
Economic Growth Outlook
Household Spending And Exports To Boost Growth
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
TABLE: GOVERMENT EXPENDITURE FORECASTS
TABLE: LONG-TERM MACROECONOMIC FORECASTS
TABLE : PRIVATE CONSUMPTION FORECASTS
TABLE: FIXED INVESTMENT FORECASTS
TABLE: NET EXPORT FORECASTS
Fiscal Policy And Public Debt Outlook
Stable Public Debt Outlook
With the budget deficit to stay below 3.0% 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
TABLE: REVENUE AND EXPENDITURE CATEGORIES
TABLE: FISCAL POLICY
External Trade And Investment Outlook
Lack Of Investment To Drag On Export Growth
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
TABLE: CAPITAL & FINANCIAL ACCOUNT BALANCE
TABLE: TOP 5 IMPORTS & EXPORTS
Monetary Policy
Low Oil Prices To Squeeze Inflation
After the Bulgarian National Bank cut its main policy rate to 0.00%, 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
Chapter 2: 10-Year Forecast
The Bulgarian Economy To 2025
The Decade Of Weakness
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
Chapter 3: Political Outlook
SWOT Analysis
BMI Political Risk Index
Domestic Politics
Reforms At Snails Pace
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 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 4: Operational Risk
SWOT Analysis
Operational Risk Index
Operational Risk
TABLE: OPERATIONAL RISK
Trade Procedures And Governance
TABLE: EMERGING EUROPE–TRADE PROCEDURES AND GOVERNANCE RISK
TABLE: TRADE PROCEDURES BREAKDOWN
Vulnerability To Crime
Chapter 5: BMI Global Macro Outlook
Global Macro Outlook
Downside Risks Gather Momentum
TABLE: GLOBAL ASSUMPTIONS
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %
TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, %
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %
TABLE: MACROECONOMIC DATA & FORECASTS

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