Bulgaria Country Report - April, 2014

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Bulgaria Country Report - April, 2014

This report covers the key macroeconomic and financial releases as well as the political events from Bulgaria for the period of April 8, 2014 - May 8, 2014.

Both the EC and the IMF left their latest GDP growth forecasts for Bulgaria unchanged from their previous estimates. The EC projects that Bulgaria's economy will grow by 1.7% in 2014, while the IMF has a slightly less optimistic forecast for 1.6% growth. In comparison, the government expects GDP growth of 2.1% this year.

Consumer price deflation eased to 2.3% year on year in March 2014 from 2.6% year on year in February mainly due to the low base effect of last year when electricity costs dropped 6.1% m/m but remained unchanged in the same month of 2014. It is expected that the price level will continue to face upward pressure in the coming months as the effects from the cuts in the regulated prices fade entirely. In addition, food and energy costs are seen rising.

The overall business climate indicator increased by 1.7 points month on month in April after advancing by 1.2 points in the previous month on improved outlook in manufacturing, construction and retail trade. The outlook in manufacturing alone improved by 1.4 points month on month in April mainly because managers in the sector are now expecting more favourable business environment in the next six months.

However, industrial companies plan to reduce capital expenditure this year, with the total investment in the sector expected to shrink 6.3% year on year, following a 6.3% year on year growth in 2013, according to a survey carried out by the statistics office.

Key points:
• General budget deficit widens 9.8% year on year to EUR 447mn in Q1 2014, reaches 1.1%/GDP
• March unemployment rate stays flat at 9-year high of 12.2% - labour agency
• Home prices flat year on year in Q1 2014 after falling for 20 straight quarters
• Current account gap narrows 24% year on year to EUR 385mn in Jan-Feb 2014
• Banking sector net profit up 34% year on year to EUR 114.4mn in Q1 2014


Table of Contents

EXECUTIVE SUMMARY ........................................................................................................................................... 5
MACROECONOMIC OVERVIEW .............................................................................................................................. 6
EC keeps Bulgaria's 2014 GDP growth forecast unchanged at 1.7%, warns of energy risks .............................. 6
IMF keeps latest 2014 GDP growth estimate for Bulgaria unchanged at 1.6% ................................................. 6
REAL SECTOR ......................................................................................................................................................... 7
1. GDP............................................................................................................................................................ 7
Bulgaria expects to draw EUR 1.8bn worth of EU funds in 2014 - deputy PM.................................................. 8
Annual household spending rises 10.3% in 2013, income grows 11.5% .......................................................... 8
2. Inflation ......................................................................................................................................................... 8
CPI deflation eases to 2.3% y/y in March 2014 on low base effect .................................................................. 9
Domestic PPI deflation eases to 1.6% y/y in March 2014 .............................................................................. 10
Farmland prices up 8.6% in 2013 .................................................................................................................. 11
Home prices flat y/y in Q1 2014 after falling for 20 straight quarters............................................................ 11
3. Industry and Trade ....................................................................................................................................... 12
Business climate index up 1.7 points m/m in April ........................................................................................ 12
Industrial output growth strengthens to 6.5% y/y in Feb 2014 ..................................................................... 13
Retail sales growth quickens to 9.2% y/y in February 2014 ........................................................................... 14
Construction output rises 5.5% y/y in February 2014 ................................................................................... 15
Industrial sector to cut investments by 6.3% in 2014 - survey ....................................................................... 16
4. Labour Market ............................................................................................................................................. 16
March unemployment rate stays flat at 9-year high of 12.2% - labour agency .............................................. 16
Unemployment rate flat m/m at 13.1% in March 2014 - Eurostat................................................................. 17
5. Tourism........................................................................................................................................................ 17
Foreign tourist arrivals in Bulgaria up 2.4% y/y in Q1 2014 ........................................................................... 17
Asian businessmen mull EUR 1.5bn tourism investment in Bulgaria ............................................................. 17
FISCAL SECTOR..................................................................................................................................................... 18
General budget deficit widens 9.8% y/y to EUR 447mn in Q1 2014, reaches 1.1%/GDP ................................ 18
Bulgaria's 2013 budget deficit fifth lowest in EU at 1.5%/GDP - Eurostat ...................................................... 19
Fiscal reserve falls 2.6% m/m to EUR 3bn at end-March 2014 ...................................................................... 19
Public debt-to-GDP ratio up 1.4pps y/y to 18.5% at end-March 2014 ........................................................... 20
FINANCIAL INTERMEDIATION............................................................................................................................... 20
Banking sector net profit up 34% y/y to EUR 114.4mn in Q1 2014 ................................................................ 20
Bank assets growth slows to 3.6% y/y in March 2014 ................................................................................... 21
Bank deposit growth slows to 5.6% y/y to EUR 34.2bn at end-March 2014 .................................................. 22
Share of bad loans in Bulgaria's banking sector edges down to 17.1% at end-March 2014............................ 22
Banking system capital adequacy rises to 20.4% at end-March 2014 ............................................................ 23
Average lending interest rate in Bulgaria down 56bps y/y to 7.64% in March 2014 ...................................... 24
EXTERNAL SECTOR ............................................................................................................................................... 24
Current account gap narrows 24% y/y to EUR 385mn in Jan-Feb 2014 ......................................................... 25
Foreign direct investment in Bulgaria down 48.9% y/y to EUR 114mn in Jan-Feb 2014 ................................. 26
Jan-Feb foreign trade gap grows 56% y/y to EUR 538mn .............................................................................. 27
Gross external debt falls 0.1% y/y to EUR 37.4bn at end-Feb 2014 ............................................................... 28
POLITICS .............................................................................................................................................................. 29
Bulgaria will seek compensations for losses related to EU sanctions against Russia - Economy Minister ....... 29

Number of pages: 29
Release Date: Fri, 09 May 2014