Bulgaria Country Report - October, 2014

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Bulgaria Country Report - October, 2014

This report covers the key macroeconomic and financial releases as well as the political events from Bulgaria for the period of October 7, 2014 - November 5, 2014.

Bulgarian election winner CEDB reached preliminary accord with the rightist Reformist Bloc a month after the snap polls on October 5 but may lack the votes needed to win the parliament's approval. The political class has failed to convince households and businesses that a stable cabinet is on the way, while pessimism about the economy has increased significantly.

In its autumn economic forecast released on November 4, the EC said it sees Bulgaria's GDP growing 1.2% this year, which is slower than the 1.7% growth projected in May. The new projection is based on the prospects for a sluggish rise in private consumption and expectations for subdued private and public investment.

Another cause for concern is the execution of Bulgaria's 2014 budget. Busy allocating the power in the next government, politicians have not paid attention to the worsening fiscal position of the country. The nine-month budget deficit reached BGN1.48bn (€758.mn), or 1.84% of the projected economic output for 2014, suggesting that the shortfall will most likely exceed 1.8% of GDP this year, which still is the government's target. The projected deficit growth by the end of this year is expected to boost public debt to 28.4% of GDP from the current level of 23.2%.

Key points:

Bulgaria drops two places to 38th in World Bank's 2015 Doing Business ranking

Business confidence worsens for fifth straight month in October

Industrial output drop deepens to 1.9% y/y in August

Retail sales growth quickens to 4.5% y/y in August

Banking sector turns to net profit in Jan-Sept without results of troubled Corpbank

CEDB leader Boyko Borissov to head Bulgaria's new minority government backed by right-wing Reformist Bloc

Table of Contents

EXECUTIVE SUMMARY 4
MACROECONOMIC OVERVIEW 5
Bulgaria drops two places to 38th in World Bank's 2015 Doing Business ranking 5
REAL SECTOR 5
1. GDP 5
EC slashes Bulgaria's 2014, 2015 GDP growth forecast on subdued domestic demand 5
FinMin slashes 2015 GDP growth forecast to 1.2% 7
2. Inflation 7
CPI deflation deepens to 0.8% y/y in September 7
Domestic PPI deflation softens to 0.6% y/y in September 8
3. Industry and Trade 9
Business confidence worsens for fifth straight month in October 9
Industrial output drop deepens to 1.9% y/y in August 10
Retail sales growth quickens to 4.5% y/y in August 10
Construction output shrinks 0.3% y/y in August 11
Net electricity output grows 9.1% y/y in Jan-Aug, consumption down 1.7% y/y 12
4. Labour Market 12
Unemployment rate ticks up to 10.5% in September - labour agency 12
5. Tourism 13
Foreign tourist arrivals to Bulgaria up 2.1% y/y in January-September 13
Revenue from foreign tourist overnights up 9.2% y/y in January-August 13
FISCAL SECTOR 13
Nine-month budget deficit exceeds full-year target 13
Fiscal reserve rises 0.9% m/m to €4.5bn at end-September 15
Public debt rises 43.5% y/y to €9.57bn at end-September 15
Bulgaria's 2013 budget deficit falls under ESA 2010, debt unchanged 16
FINANCIAL INTERMEDIATION 16
Banking sector turns to net profit in Jan-Sept without results of troubled Corpbank 16
Banking sector assets fall 3.6% y/y to €41.8bn at end-September 17
Bank deposits down 2% y/y at end-September 18
Average lending interest rates decline in September 18
Share of bad loans in Bulgaria's banking sector rises to 17.3% at end-September 19
EXTERNAL SECTOR 20
Eight-month current account surplus shrinks 36% y/y to EUR 809mn on falling exports 20
FDI in Bulgaria up 4% y/y to EUR 1.22bn in January-August 21
FX reserves up 0.1% m/m at end-October 21
Gross foreign debt up 2.2% y/y to EUR 38.2bn at end-August 22
Trade gap widens 33% y/y to EUR 1.9bn in January-August 24
POLITICS 24
CEDB leader Boyko Borissov to head Bulgaria's new minority government backed by right-wing Reformist Bloc 25

Number of pages: 25
Release Date: Wed, 05 Nov 2014