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Bulgaria Country Report - June, 2016

Bulgaria Country Report - June, 2016 This report covers the key macroeconomic, financial and political releases for Bulgaria for the period since June 16, 2016.

Finance Minister Vladislav Goranov said that he does not expect Brexit to have serious direct impact on Bulgaria.

Bulgaria's business confidence improved m/m for a second consecutive month in June. The industrial production fell 3.3% y/y in May, reversing a 2.6% y/y increase in April. Bulgaria's construction output fell 8.1% y/y in May, after decreasing by 10.5% y/y the month before. Retail sales (at constant prices) climbed 3.9% y/y in May, slowing down from a 5.4% y/y increase in April.

An arbitration court in Geneva has ruled that Bulgaria’s state-owned National Electricity Company (NEK) has to pay €550mn to Russia’s Atomstroyexport, a unit of Rosatom, for equipment already produced for the cancelled Belene nuclear power plant project.

The Bulgarian parliament has adopted a new draft anti-corruption law in its first reading.


Key points:
The CPI decreased by 1.3% y/y in June, after dropping by 2% y/y in May
Bulgaria reported a consolidated budget surplus of BGN3.09bn (€1.58bn) in the first half of 2016, equal to some 3.5% of projected GDP, preliminary data from the finance ministry showed
The country reported a current account surplus of €274.8mn in the first five months of 2016, reversing a deficit of €192.1mn in January-May 2015


EXECUTIVE SUMMARY 4
MACROECONOMIC OVERVIEW 5
Bulgarian finance minister does not expect serious direct impact of Brexit 5
Bulgaria's long-term convergence interest rate rises to 2.4% in June 5
REAL SECTOR 6
1. Inflation 6
Bulgaria’s CPI deflation eases to 1.3% y/y in June 6
Bulgaria’s annual PPI deflation deepens to 4.5% in May 7
2. Industry and Trade 7
Bulgaria’s business climate improves in June 7
Bulgarian parliament elects new members to antitrust regulator 8
Bulgaria’s industrial production drops 3.3% y/y in May 8
Bulgaria’s construction output decline eases to 8.1% y/y in May 9
Bulgaria's retail sales growth decelerates to 3.9% y/y in May 10
3. Labour Market 11
Bulgaria's unemployment rate drops to 8.4% in June, labour agency data show 11
Bulgaria’s labour cost growth accelerates to 7.7% y/y in Q1 11
4. Tourism 11
Bulgaria’s accommodation revenue rises 18.7% y/y in May 11
Foreign tourists in Bulgaria up 11.8% y/y in May 12
FISCAL SECTOR 12
Bulgaria reports budget surplus of 3.5% of GDP in H1 12
Bulgaria’s NEK to pay €550mn for cancelled Belene nuclear project, arbitration court rules 13
Bulgaria’s fiscal reserve rises 9.1% in May 14
Bulgaria’s government debt rises 8.6% y/y at end-May 15
FINANCIAL INTERMEDIATION 16
Bulgarian banking sector profit rises 12.3% y/y in January-May 16
Fitch affirms Raiffeisenbank (Bulgaria), FIBank, upgrades UBB 16
IMF, World Bank launch preliminary mission in Bulgaria over new FSAP 17
Bulgaria’s M3 growth speeds up, contraction of non-government loans eases in May 18
Bulgaria’s deposit, lending interest rates mostly down m/m in May 18
Bulgarian parliament to elect new chairperson of financial regulator by end-July 19
EXTERNAL SECTOR 20
Bulgaria reports current account surplus of 0.6% of GDP in January-May 20
FDI in Bulgaria drops 34.4% y/y in January-May 20
Bulgaria’s foreign trade deficit narrows 54% y/y in January-May 21
Bulgaria’s gross external debt drops 8.7% y/y at end-April 22
Bulgaria's foreign reserves rise 3.2% in June 22
POLITICS 23
Bulgarian PM Borissov considers cabinet reshuffle 23
Study shows 22.2% of Bulgarians involved in corruption in last year 24
Bulgarian parliament adopts anti-corruption bill in first reading 24
German President Gauck visits Bulgaria, calls for rule of law, tackling corruption 25
Bulgaria’s ruling GERB party leads in opinion poll 25


Table 1 CPI, % y/y 6
Table 2 Domestic market PPI, % y/y 7
Table 3 Consolidated budget, BGN mn 13
Table 4 Fiscal reserve, BGN mn 15
Table 5 Government debt, € mn 16
Table 6 Money supply, domestic credit, loans 18
Table 7 Current account, € mn 20
Table 8 Foreign trade, FOB/FOB, BGN mn 21
Table 9 Gross external debt, €mn 22

Figure 1 Long-term convergence interest rate 5
Figure 2 Bulgaria CPI, % y/y 6
Figure 3 Domestic market PPI, % y/y 7
Figure 4 Industrial output 9
Figure 5 Construction output 10
Figure 6 Retail sales 10
Figure 7 Fiscal reserve, BGN mn 15
Figure 8 Government debt 15
Figure 9 Average interest rates on new euro loans 19
Figure 10 FDI in Bulgaria, € mn 21
Figure 11 Gross external debt, € mn 22
Figure 12 Foreign reserves

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