Bulgaria Country Report - November, 2013

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Bulgaria Country Report - November, 2013

This report covers the main macroeconomic releases of November 2013 for Bulgaria as well as financial and political trends in the country during this period.

The Bulgarian economy expanded 0.7% year on year in the third quarter of 2013, the statistics office said on December 4. This marks a slight downward revision of the preliminary estimate of 0.8%. In quarterly terms, the seasonally adjusted GDP expanded by 0.5% in Q3, also a slightly weaker rate than the flash estimate of 0.6%. The European Commission cut its projections for Bulgaria's real GDP growth to 0.5% in 2013 and 1.5% in 2014. Michele Shannon, the IMF's mission chief for Bulgaria, said in an interview for Capital Daily that preserving macroeconomic stability is a key prerequisite for higher levels of growth in Bulgaria.

The Bulgarian aggregate price level recorded a third consecutive annual decline as the consumer price index went down by 1.4% year on year in October after falling by 1.6% in September and 0.7% in August. The unemployment rate increased 0.5pps year on year to 12% in the third quarter of 2013 on higher number of people entering the labor market in search of a job.

Key Points:

• The overall business climate indicator increased 1.7 points month on month in November 2013 on the improved outlook in industry and services after falling 2.1 points in the previous month.

• The calendar-adjusted industrial production index registered its first annual increase since March, rising by 0.5% year on year in September.

• The approval rating of Bulgaria's government declined to 26% in November from 30% the month before.

• The IMF has said that Bulgaria’s budget deficit target of 1.8% of GDP in 2014 is justifiable. but there are revenue-side risks associated with lower-than-expected domestic demand, unrealized gains from planned administrative reforms, and subdued inflation.

Table of Contents

Executive Summary
1. Macroeconomic Overview
1.1 Bulgaria's macroeconomic stability is key to higher output growth - IMF

2. Real Sector
2.1 GDP
2.1.1 Bulgaria's Q3 GDP growth revised down to 0.7% y/y
2.1.2 EC cuts Bulgaria's real GDP growth forecast to 0.5% in 2013, 1.5% in 2014
2.1.3 EBRD cuts Bulgaria's GDP growth forecast by 0.6pps to 0.4% in 2013 on weak domestic demand

2.2 Inflation
2.2.1 Consumer prices down 1.4% y/y in October 2013
2.2.2 Domestic market PPI falls 3.9% y/y in October 2013

2.3 Industry and Trade
2.3.1 Business climate index up 1.7 points m/m in November 2013
2.3.2 Industrial production turns to 0.5% y/y growth in September 2013
2.3.3 Retail sales accelerate further to 6.2% y/y in September 2013

2.4 Labor Market
2.4.1 Unemployment rate up 0.5pps y/y to 12% in Q3 2013 - labor force survey
2.4.2 October unemployment rate up 0.4pps m/m to 11.2%
2.4.3 Eurostat puts Bulgaria's unemployment rate at 13.2% in October, up by 0.1pps m/m

2.5 Tourism
2.5.1 Foreign tourist arrivals up 3.8% y/y to 8.3mn in Jan-Oct 2013

3. Fiscal Sector
3.1 Consolidated govt budget posts EUR 226.5mn deficit in Jan-Oct 2013
3.2 Parliament approves 2014 budget framework, deficit gap seen at EUR 683mn
3.3 IMF says Bulgaria’s budget deficit target of 1.8% of GDP in 2014 is justifiable
3.4 Bulgaria to raise EUR 1bn from foreign debt markets in 2014, PM Oresharski says

4. Financial Intermediation
4.1 Banking sector’s net profit down 8.8% y/y to EUR 261.5mn in Jan-Oct 2013
4.2 Banking sector assets up 6.3% y/y to EUR 43.3bn at end-October 2013
4.3 Bank deposits up 5.9% y/y to EUR 33.3bn at end-October 2013

5. External Sector
5.1 Current account turns to EUR 1.4bn surplus in Jan-Sep 2013
5.2 Foreign direct investment into Bulgaria halves y/y to EUR 854.4mn in Jan-Sep 2013
5.3 Trade gap down 38.4% y/y to EUR 1.62bn in Jan-Sep 2013
5.4 Gross external debt falls 0.9% y/y to EUR 37.2bn at end-September 2013
5.5 Foreign reserves down 1.1% m/m to EUR 14.3bn at end-Nov 2013

6. Politics
Government's approval rating falls 4 points m/m to 26% in November - Gallup poll

Number of pages: 22
Release Date: Mon, 09 Dec 2013