Bulgaria Country Report - May, 2014

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Bulgaria Country Report - May, 2014

This report covers the key macroeconomic and financial releases as well as the political events from Bulgaria for the period of May 8, 2014 - June 5, 2014.

Bulgaria's economic growth for the first quarter of 2014 was revised up to 1.2% y/y from a flash estimate of 1.1% because of higher government spending and increase in business investment.

Meanwhile, the EBRD has upgraded marginally its 2014 GDP growth forecast for Bulgaria to 1.9% in the May edition of its Regional Economic Prospects from 1.8% expected in January 2014.

The unemployment rate (age 15 and more) fell by 0.8pps y/y to 13% in the first quarter of 2014, with the number of unemployed declining by 23,400 to 433,000.

The average gross monthly wage rose 2.3% y/y to BGN 796 (EUR 407) in Q1 2014 after increasing 3.1% y/y in the last quarter of 2013.

Industrial production increased 4.2% y/y in March 2014, retreating from a 5.9% annual growth the month before (revised down from an initial 6.5% growth estimate) on slower manufacturing output growth. Retail sales (autos excluded) rose 5.8% y/y in real terms in March 2014, slowing from a 9.3% y/y growth a month earlier.

The overall business sentiment indicator increased by 4.3 points on the month to a 5.5-year high of 24.5 in May 2014 on across the board improvement in managers' outlook.

Consumer price deflation eased to 1.6% y/y in April 2014 from 2.3% the month before mainly due to a slower decline in food prices, according to statistics office data. In monthly terms, consumer prices inched up 0.3% in April, reversing a 0.2% monthly drop in March. Food prices fell 1.1% y/y in April, easing from a 2% decline in the previous month as a result of the fading low base effect of last year's exceptionally good harvest.

The centre-left ruling coalition seems to be collapsing and early elections might be just around the corner after Lyutvi Mestan, leader of the junior coalition partner MRF, said on Thursday (June 5) that the government will not be able to complete its four-year mandate and outlined three snap poll scenarios, giving preference to a vote by the end of 2014.

Table of Contents

Contents
EXECUTIVE SUMMARY 5
MACROECONOMIC OVERVIEW 6
EC urges Bulgaria to scale up energy sector reforms 6
EBRD lifts Bulgaria's 2014 GDP growth forecast to 1.9% on higher exports, household consumption 6
Ernst & Young sees Bulgaria's GDP growth at 2.3% in 2014 7
Bulgaria climbs one position to 56th out of 60 in IMD’s competitiveness ranking 7
REAL SECTOR 8
1. GDP 8
Q1 GDP growth revised up to 1.2% y/y, 0.3% q/q 8
Average gross monthly salary up 2.3% y/y to EUR 407 in Q1 2014 9
Household spending rises 2.4% y/y in Q1 2014, income grows 8.1% y/y 10
2. Inflation 10
CPI deflation softens to 1.6% y/y in April 2014 on easing food prices decline 10
Domestic PPI deflation softens to 0.9% y/y in April 2014 on rising base metals demand 11
Agricultural PPI falls 11.8% y/y in Q1 2014 12
Household electricity prices fall 7.7% y/y in H2 2013, gas prices down 6.8% y/y - Eurostat 12
3. Industry and Trade 13
Business climate index rises 4.3 points m/m to 5.5-year high of 24.5 in May 2014 13
Industrial output growth slows to 4.2% y/y in March 2014 14
Retail sales growth dwindles to 5.8% y/y in March 2014 15
Construction output up 4.7% y/y in March 2014 16
4. Labour Market 17
Unemployment rate down 0.8pps y/y to 13% in Q1 2014 - labour force survey 17
Number of working Bulgarians up 0.3% y/y to 3.3mn in Q1 2014 17
Unemployment rate ticks down to 12.8% in April - Eurostat 17
Employment rate in Bulgaria up 0.5pps to 63.5% in 2013 - Eurostat 18
Labour productivity up 1.2% y/y in Q1 2014 18
5. Tourism 18
Number of Bulgarian tourists up 24.4% y/y in Q1 2014 18
Foreign tourist arrivals to Bulgaria up 2.8% y/y in Jan-April 2014 19
Revenue from foreign tourist overnights up 8% y/y to EUR 26.3mn in Q1 2014 19
FISCAL SECTOR 19
Jan-April general budget deficit grows to 1.1% of GDP 19
Fiscal reserve up 0.9% m/m to EUR 3bn at end-April 2014 21
Public debt-to-GDP ratio up 1.48pps y/y to 18.5% at end-April 2014 21
FINANCIAL INTERMEDIATION 22
Banking sector net profit up 45% y/y to EUR 156.6mn in Jan-April 2014 22
Banks’ assets up 4.7% y/y to EUR 44.2bn at end-April 2014 23
Bank deposit stock up 6.8% y/y to EUR 34bn at end-April 24
Average lending interest rate in Bulgaria down 71bps y/y to 7.79% in April 2014 24
Stock of Bulgarian microcredit loans falls 0.6% y/y to EUR 1bn at end-March 2014 25
Assets of Bulgarian leasing companies fall 8.8% y/y to EUR 2.04bn at end-March 2014 26
Investment funds assets rise 37% y/y to EUR 403mn at end-March 2014 26
EXTERNAL SECTOR 26
Current account gap narrows 80% y/y to EUR 83mn in Q1 2014 27
FDI in Bulgaria drop 76.2% y/y to EUR 89mn in Q1 2014 28
Q1 foreign trade gap widens 82% y/y to EUR 826mn 29
Gross external debt flat y/y at EUR 37.89bn as of end-March 2014 30
Foreign reserves down 1.7% m/m to EUR 13.8bn at end-May 2014 31
POLITICS 31
Official Bulgarian results confirm opposition CEDB's EU elections victory 32
Bulgaria moves towards early elections, polls likely to take place by year-end 33

Number of pages: 33
Release Date: Fri, 06 Jun 2014