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Bulgaria Country Report - February, 2016

Bulgaria Country Report - February, 2016

This report covers the key macroeconomic, financial and political releases for Bulgaria for the period since February 16, 2016.

Bulgaria’s GDP increased by a real 3% in 2015, accelerating from a 1.6% rise in 2014. The 2015 reading is the highest growth since 2008.

On March 8, the European Commission adopted a Communication, in which it found that the country is experiencing excessive macroeconomic imbalances.

Bulgaria's business confidence strengthened m/m for a second consecutive month in February, with the total business climate indicator increasing 0.5 points, after a 0.6 point rise in January. The industrial production growth decelerated to 3% y/y in January from 3.5% y/y in December. The construction output went down 10.7% y/y in January, following a 2.1% y/y decline the month before. Retail sales (at constant prices) increased by 1.3% y/y in January, decelerating from a 1.7% y/y rise in December.


Key points:
The CPI decreased by 0.5% y/y in February, after being flat y/y in January
Bulgaria reported a consolidated budget surplus of BGN961mn (€491.4mn) in January and February, equal to some 1.1% of projected GDP, preliminary data from the finance ministry showed
Bulgaria issued on March 14 two Eurobond tranches worth a combined €1.994bn
The current account surplus increased by 9.4% to €541.6mn in 2015


EXECUTIVE SUMMARY 4
MACROECONOMIC OVERVIEW 5
Bulgaria makes some progress on country-specific recommendations, EC says 5
Bulgaria’s average per capita income up 2.9% y/y, expenditure down 0.7% y/y in Q4 5
Bulgaria's long-term convergence interest rate rises to 2.67% in February 6
REAL SECTOR 6
1. GDP 6
Bulgaria’s GDP growth speeds up to 3% in 2015 6
2. Inflation 7
Bulgaria reports CPI deflation of 0.5% y/y in February 7
Bulgaria’s annual PPI deflation softens to 2.9% in January 8
Bulgaria's agricultural producer prices rise 9.8% y/y in Q4 9
3. Industry and Trade 9
Bulgaria’s business climate improves in February 9
Bulgaria’s industrial production growth slows to 3% y/y in January 10
Bulgaria's construction output drops 10.7% y/y in January 10
Bulgaria's retail sales growth decelerates to 1.3% y/y in January 11
4. Labour Market 12
Bulgaria's unemployment rate drops to 10% in February, labour agency 12
Bulgaria’s 2015 labour productivity data mixed 12
5. Tourism 12
Bulgaria’s accommodation revenue rises 9% y/y in January 12
Foreign tourists in Bulgaria up 18.3% y/y in January 13
FISCAL SECTOR 13
Bulgaria reports budget surplus of 1.1% of GDP in January-February 13
Bulgaria’s fiscal reserve rises 17% in January 14
Bulgaria issues two Eurobond tranches worth €1.994bn 15
Bulgaria’s government debt rises 9.1% y/y at end-January 15
FINANCIAL INTERMEDIATION 16
Bulgarian banking sector profit down 29% y/y in January 16
Bulgarian unit of Greece’s Eurobank concludes acquisition of Alpha Bank branch 16
Bulgaria’s M3 growth slows, domestic credit turns to annual decline in January 17
Bulgaria’s deposit, lending interest rates mixed in January 18
Assets of Bulgarian resident investment funds drop 1% to €406.2mn at end-2015 18
EXTERNAL SECTOR 19
Bulgaria’s current account surplus widens 9.4% in 2015 19
FDI in Bulgaria rises 22.5% in 2015 20
Bulgaria turns to foreign trade surplus in January 20
Bulgaria’s gross external debt drops 13.2% in 2015 21
Bulgaria's foreign reserves rise 0.9% in February 22
POLITICS 23
EU’s Juncker hints at separating Bulgaria, Romania under CVM process 23
Bulgaria’s ruling GERB party leads in opinion poll 23

Table 1 GDP, % y/y real 7
Table 2 CPI, % y/y 8
Table 3 Domestic market PPI, % y/y 9
Table 4 Bulgaria consolidated budget, BGN mn 14
Table 5 Fiscal reserve, BGN mn 14
Table 6 Government debt, € mn 15
Table 7 Money supply, domestic credit, loans 18
Table 8 Current account, € mn 19
Table 9 Foreign trade, FOB/FOB, BGN mn 20
Table 10 Gross external debt, €mn 21


Figure 1 Long-term convergence interest rate 6
Figure 2 Real GDP growth, % 7
Figure 3 Bulgaria CPI, PPI 8
Figure 4 Industrial output 10
Figure 5 Construction output 11
Figure 6 Retail sales 12
Figure 7 Fiscal reserve, BGN mn 14
Figure 8 Government debt, € mn 16
Figure 9 Average interest rates on new euro loans 18
Figure 10 Foreign trade 21
Figure 11 Gross external debt, € mn

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