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Bulgaria Country Report - May, 2016

Bulgaria Country Report - May, 2016

This report covers the key macroeconomic, financial and political releases for Bulgaria for the period since May 17, 2016.

The country’s economy expanded by 2.9% y/y in Q1, the statistics office said on June 7, confirming its flash estimate. The World Bank has left unchanged its 2016 GDP growth forecast for Bulgaria at 2.2%, the latest edition of the bank's Global Economic Prospects report showed.

S&P Global Ratings said on June 3 that it has affirmed its BB+/B long- and short-term foreign and local currency sovereign credit ratings on Bulgaria with a stable outlook. Also on June 3, Fitch Ratings has affirmed Bulgaria's long-term foreign and local currency Issuer Default Ratings (IDR) at BBB- and BBB, respectively, with stable outlooks.

Bulgaria's business confidence improved m/m in May. The industrial production growth cooled to 2.5% y/y in April from 2.6% y/y in March. The construction output fell 10.4% y/y in April, deteriorating from an 8.8% y/y decrease the month before. Retail sales (at constant prices) climbed 5.4% y/y in April, slowing down from a 6.3% y/y increase in March.


Key points:
The CPI decreased by 2% y/y in May, after dropping by 2.2% y/y in April
Bulgaria reported a consolidated budget surplus of BGN2.68bn (€1.37bn) in January-May, equal to some 3% of projected GDP, preliminary data from the finance ministry showed
The country reported a current account surplus of €185.1mn in the first quarter of 2016, up from a surplus of €113.7mn Q1 2015


EXECUTIVE SUMMARY 4
MACROECONOMIC OVERVIEW 5
Bulgaria needs economic, structural reforms, ECB says 5
EC recommends fiscal adjustment, finalising of bank stress tests in Bulgaria 5
S&P affirms Bulgaria’s ratings at BB+/B with stable outlook 6
Fitch affirms Bulgaria at BBB- with stable outlook 7
Bulgaria's long-term convergence interest rate declines to 2.37% in May 7
REAL SECTOR 8
1. GDP 8
Bulgaria’s Q1 GDP growth confirmed at 2.9% y/y 8
World Bank keeps Bulgaria's 2016 GDP growth forecast at 2.2% 9
2. Inflation 9
Bulgaria’s CPI deflation eases to 2% y/y in May 9
Bulgaria’s annual PPI deflation stays at 4.1% in April 10
Bulgaria's agricultural producer prices drop 5% y/y in Q1 11
3. Industry and Trade 11
Bulgaria’s business climate improves in May 11
Bulgaria’s industrial production growth slows to 2.5% y/y in April 12
Bulgaria’s construction output decline worsens to 10.4% y/y in April 12
Bulgaria's retail sales growth decelerates to 5.4% y/y in April 13
4. Labour Market 14
Bulgaria's unemployment rate drops to 8.7% in May, labour agency says 14
5. Tourism 14
Bulgaria’s accommodation revenue rises 12.1% y/y in April 14
Foreign tourists in Bulgaria up 41.5% y/y in April 14
FISCAL SECTOR 15
Bulgaria reports budget surplus of 3% of GDP in January-May 15
Bulgaria launches concession tender for Sofia Airport 16
Bulgarian parliament approves €1.2bn army modernisation 16
Bulgaria’s parliament adopts legislation on financial recovery of municipalities 17
Bulgaria’s fiscal reserve rises 3.8% in April 17
Bulgaria’s government debt rises 8.9% y/y at end-April 18
FINANCIAL INTERMEDIATION 19
Bulgarian banking sector profit rises 17.3% y/y in January-April 19
Fitch affirms three Bulgarian banks, one leasing company 19
Belgrade court approves extradition of Corpbank majority shareholder to Bulgaria 19
Bulgaria’s central bank approves acquisition of TBI Bank 20
Bulgaria’s M3 growth speeds up, domestic credit contraction narrows in April 21
Bulgaria’s deposit interest rates mostly up m/m, lending rates mixed in April 22
Assets of Bulgarian resident investment funds drop 6.9% y/y to €408.9mn at end-March 22
EXTERNAL SECTOR 23
Bulgaria’s current account surplus widens 62.7% y/y in Q1 23
FDI in Bulgaria drops 36.6% y/y in Q1 24
Bulgaria’s 4-mo foreign trade deficit narrows 72.6% y/y 25
Bulgaria’s gross external debt drops 11.7% y/y at end-March 25
Bulgaria's foreign reserves rise 0.5% in May 26
POLITICS 27
Bulgarian deputy transport minister resigns after being charged over 2007 case 27
Bulgarian President Plevneliev says will not run for second term in 2016 elections 28
Bulgarian parliament rejects presidential veto on electoral code amendments 28

Table 1 GDP, % y/y real, sa 9
Table 2 CPI, % y/y 10
Table 3 Domestic market PPI, % y/y 11
Table 4 Consolidated budget, BGN mn 16
Table 5 Fiscal reserve, BGN mn 17
Table 6 Government debt, € mn 18
Table 7 Money supply, domestic credit, loans 22
Table 8 Current account, € mn 24
Table 9 Foreign trade, FOB/FOB, BGN mn 25
Table 10 Gross external debt, €mn 26

Figure 1 Long-term convergence interest rate 8
Figure 2 Bulgaria CPI, % y/y 10
Figure 3 Domestic market PPI, % y/y 11
Figure 4 Industrial output 12
Figure 5 Construction output 13
Figure 6 Retail sales 13
Figure 7 Fiscal reserve, BGN mn 18
Figure 8 Government debt 18
Figure 9 Average interest rates on new euro loans 22
Figure 10 FDI in Bulgaria, € mn 24
Figure 11 Gross external debt, € mn 26
Figure 12 Foreign reserves 27

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