Bulgaria Country Report - August, 2014

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Bulgaria Country Report - August, 2014

This report covers the key macroeconomic and financial releases as well as the political events from Bulgaria for the period of August 6, 2014 - September, 5 2014.
The growth momentum of Bulgaria's economy quickened in the second quarter of 2014 as GDP rose 1.6% y/y, up from а 1.2% y/y increase in the previous three months, the statistics office said, confirming its preliminary estimates. In seasonally-adjusted quarterly terms, GDP expanded by 0.5% in Q2, also unchanged from the first estimate.
Meanwhile, rising food and regulated prices in July softened Bulgaria's annual consumer price deflation to an 11-month low of 1%.
The unemployment rate (age 15 and more) fell by 1.5pps y/y to a nearly 3-year low of 11.4% in the second quarter of 2014, with the number of unemployed declining by 55,500 to 381,800.
However, weak revenues and limited access to EU funds boosted Bulgaria's seven-month general budget deficit to 1.4% of GDP, uncomfortably near the 1.8% full-year target.

Key points:
• Business confidence posts third consecutive monthly decline in August
• Public debt y/y growth quickens to 36.4% at end-July
• Banking sector net profit drops 39% y/y in Jan-July on surge in Corpbank's impairments
• Banking sector assets grow 3.4% y/y in July on higher interbank lending
• H1 current account surplus doubles y/y to EUR 262.4mn
• New poll shows Bulgaria's centre-right CEDB far ahead of socialist BSP in August

Table of Contents

EXECUTIVE SUMMARY 6
MACROECONOMIC OVERVIEW 7
Bulgaria climbs three places in WEF competitiveness ranking 7
REAL SECTOR 7
1. GDP 7
Q2 GDP growth confirmed at 1.6% y/y 7
C-bank sees steady H2 GDP growth of around 1.4% y/y 8
Interim finance minister forecasts 1.5%-1.6% GDP growth in 2014 8
EIU sees Bulgaria's economy growing 1.5% in 2014 9
Bulgaria to get up to EUR 10bn in EU funding over 2014-2020 9
2. Inflation 10
Annual CPI deflation eases to 11-month low of 1% in July 2014 10
Domestic PPI deflation deepens to 0.6% y/y in July 2014 11
Agricultural producer prices fall 3.3% y/y in Q2 2014 11
Electricity prices fall 8.2% y/y in H1 2014, gas prices down 2.7% y/y 12
3. Industry and Trade 12
Business confidence posts third consecutive monthly decline in August 12
Industrial output growth brakes to 0.6% y/y in June 2014 13
Retail sales growth quickens to 2.4% y/y in June 2014 13
Construction output rises 5.6% y/y in June 2014 14
Investments in tangible fixed assets rise 3.5% y/y in Q2 2014 15
Net electricity production up 10% y/y in H1 2014, consumption down 2.6% y/y 15
4. Labour Market 16
Unemployment rate falls to nearly 3-year low of 11.4% in Q2 2014 - labour force survey 16
Unemployment rate down 0.2pps y/y to 10.6% in July 2014 - labour agency 16
Number of working Bulgarians up 0.3% y/y to 3.53mn in Q2 2014 17
Labour productivity growth speeds to 1.9% y/y in Q2 2014 17
5. Tourism 17
Foreign tourist arrivals to Bulgaria up 3.8% y/y in Jan-July 2014 17
Number of Bulgarian tourists down 1.2% y/y in Q2 2014 18
Bulgaria's revenue from foreign tourist overnights up 10.6% y/y in H1 2014 18
FISCAL SECTOR 18
Budget deficit widens to 1.4% of GDP at end-July, likely to exceed 1.8% full-year target 18
Fiscal reserve up 34.6% m/m to EUR 4.5bn at end-July 2014 19
Public debt y/y growth quickens to 36.4% at end-July 20
FINANCIAL INTERMEDIATION 21
Banking sector net profit drops 39% y/y in Jan-July on surge in Corpbank's impairments 21
Banking sector assets grow 3.4% y/y in July on higher interbank lending 22
M3 rises 6.9% y/y at end-July 2014, domestic credit growth slows to 1.1% y/y 23
Average lending interest rates decline in July 2014 24
Bank deposits up 6.4% y/y to EUR 34.5bn at end-July 2014 24
Leasing companies assets down 6.8% y/y at end-June 2014 25
Stock of Bulgarian microcredit loans up 1.5% y/y to EUR 1.03bn at end-June 2014 25
EXTERNAL SECTOR 26
H1 current account surplus doubles y/y to EUR 262.4mn 26
FDI in Bulgaria drop 23% y/y to EUR 491mn in H1 2014 27
Foreign reserves up 1.3% m/m to EUR 15.3bn at end-Aug 2014 28
Gross foreign debt rises 0.7% y/y to EUR 38bn at end-June 2014 29
H1 trade gap widens 24.4% y/y to EUR 1.54bn 30
POLITICS 31
New poll shows Bulgaria's centre-right CEDB far ahead of socialist BSP in August 31

Number of pages: 31
Release Date: Tue, 09 Sep 2014