Bulgaria Country Report - February, 2014

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Bulgaria Country Report - February, 2014

This report covers the key macroeconomic data and political developments for Bulgaria published between February 5 and March 5, 2014.

The Bulgarian economy expanded by 0.9% in 2013, quickening from 2012's 0.6% growth and beating government estimates, as well as those of the EC, the IMF, and the EBRD, whose median forecast was for a 0.5% rise. The growth was supported by rising government spending and strong exports: government expenditures advanced 2.1% last year, adding 0.2percentage points to overall growth, while exports rose 8.9%, contributing 5.8pps. On the other hand, household consumption fell 2.3% in 2013, subtracting 1.6pps.

On a related note, the income of Bulgarian households increased 7.8% year on year to BGN 2,927 (EUR 1,497) in the fourth quarter of 2013, while expenditures increased at a faster annual rate of 9% to BGN 2,707. Income growth was also supported by falling consumer prices, which decreased for a sixth month in a row in January with the CPI index dropping 2.2% year on year, deeper than the 1.6% annual decrease in December.

However, the unemployment rate increased 0.6pps year on year to 13% in the fourth quarter of 2013 as the economy lost 20,200 jobs, most of which were high-skilled industry positions.

Key Points:

• The public debt-to-GDP ratio was up 3pps year on year to 18.4% at end-January 2014.

• Industrial output swung to a 1% year on year decline in December 2013.

• Retail sales growth eased to 5.6% year on year in December 2013.

• The current account showed a EUR 831.3mn surplus in 2013.

• The ruling Bulgarian Socialist Party has regained its lead, according to the latest Gallup International elections poll.

• Radical party Ataka has threatened to withdraw its support of the Bulgarian government if certain policy proposals and demands are not fulfilled.

Table of Contents

Executive Summary
1. Macroeconomic Overview
1.1 Most Bulgarian business owners unhappy with employees' university-level skills

2. Real Sector
2.1 GDP
2.1.1 GDP growth accelerates to 0.9% in 2013, beats estimates
2.1.2 EC raises Bulgaria's 2014 GDP growth forecast to 1.7%
2.1.3 Household spending rises 9% y/y in Q4 2013, income grows 7.8% y/y

2.2 Inflation
2.2.1 CPI deflation deepens to 2.2% y/y in January 2014
2.2.2 Domestic market PPI deflation eases to 2% y/y in January 2014
2.2.3 Agricultural producer prices drop 19.3% y/y in Q4 2013

2.3 Industry and Trade
2.3.1 Business climate index flat m/m in February 2014
2.3.2 Industrial output swings to 1% y/y decline in December 2013
2.3.3 Retail sales growth eases to 5.6% y/y in December 2013
2.3.4 Construction output in Bulgaria down 2.8% y/y in December 2013

2.4 Labour Market
2.4.1 Unemployment rate rises to 12.2% in January 2014 - labour agency
2.4.2 Unemployment rate up 0.6pps y/y to 13% in Q4 2013 - labour force survey

2.5 Tourism
2.5.1 January foreign tourist arrivals in Bulgaria rise 4.7% y/y
2.5.2 Number of Bulgarians on tourism travel fell 1% y/y in Q4 2013

3. Fiscal Sector
3.1 Consolidated budget deficit shrinks to EUR 191mn in January 2014
3.2 Fiscal reserve down 6.7% m/m to EUR 2.23bn at end-January 2014
3.3 Public debt-to-GDP ratio up 3pps y/y to 18.4% at end-January 2014

4. Financial Intermediation
4.1 Banking sector net profit up 15.4% y/y to EUR 37mn in January 2014
4.2 Banking sector assets up 5.3% y/y to EUR 44.1bn at end-January 2014
4.3 Bank deposits up 7% y/y to EUR 34.1bn at end-January 2014
4.4 Assets of Bulgarian investment funds rise 74% y/y to EUR 356.4mn at end-2013

5. External Sector
5.1 Current account swings to EUR 831.3mn surplus in 2013
5.2 Foreign direct investment in Bulgaria down 17% to EUR 1.2bn in 2013
5.3 Trade gap shrinks 32.3% to EUR 2.34bn in 2013
5.4 Gross external debt falls 1.3% y/y to EUR 37.1bn at end-2013

6. Politics
6.1 Ruling Bulgarian Socialist Party regains lead in latest elections poll - Gallup International
6.2 Radical Ataka threatens to withdraw support to Bulgarian government
6.3 Parliament overturns presidential veto on new election code

Number of pages: 26
Release Date: Wed, 05 Mar 2014