Bulgaria Country Report - October, 2016

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Bulgaria Country Report - October, 2016

This report covers the key economic, financial and political releases for Bulgaria for the period October 20 – November 18.

On November 14, Prime Minister Boyko Borissov submitted to the parliament the resignation of the government he leads. The move came after the second round of the presidential election was won by the candidate supported by the opposition Bulgarian Socialist Party (BSP). The parliament accepted the cabinet's resignation on November 16.

Total has discovered oil in a Bulgarian Black Sea offshore block, the French energy company said in its third-quarter results report.

Bulgaria’s real GDP growth decelerated to 3.5% y/y in the third quarter of 2016 from 3.6% y/y in the previous three months, a seasonally-adjusted statistics office flash estimate showed.

In its autumn European Economic Forecast, the European Commission (EC) revised upwards its projections for Bulgaria’s GDP growth in 2016 and 2017 to 3.1% and 2.9% respectively. The European Bank for Reconstruction and Development (EBRD) has raised its forecasts of Bulgaria’s real GDP growth to 2.8% in both 2016 and 2017, the institution said in its Regional Economic Prospects report on November 3.

Bulgaria's overall business climate indicator decreased 1.3 points m/m in October, after staying flat m/m in the previous two months. The industrial production increased 3.3% y/y in September, accelerating from a 2.6% y/y rise in August. The construction output decline steadied at 10% y/y in September. The annual growth of retail sales (at constant prices) slowed down to 2% from 5.3%.

Key points:
• The CPI declined by 0.6% y/y in October, following a drop of the same size in September
• Bulgaria reported a consolidated budget surplus of BGN3.41bn (€1.74bn) in January-October 2016, equal to around 3.8% of projected GDP, preliminary data from the finance ministry showed
• The country reported a current account surplus of €2.13bn in the first nine months of 2016, up from a surplus of €954.6mn in the same period of 2015


Table of Contents

1. EXECUTIVE SUMMARY 5
2. POLITICS 6
Bulgaria’s bribery rate 4th highest in EU, TI report shows 6
Bulgarian PM Borissov tenders resignation of government, parliament accepts it 6
Bulgarian showman appeals national referendum turnout count 8
Bulgaria buys 10 jet engines for MiG-29 fighters for €21.8mn 8
Bulgarian parliament adopts last-minute electoral code changes in final reading 9
Bulgaria’s interior minister raises danger level on border with Turkey over migrants 9
3. MACROECONOMIC OVERVIEW 10
"Resilient" Bulgarian economy to grow 3.3% in 2016, IMF says 10
Bulgaria’s business confidence worsens m/m in October 11
Bulgaria drops to 39th position in WB’s Doing Business 2017 ranking 11
Bulgaria’s consumer confidence slightly worsens in October 12
Bulgaria’s average per capita income rises 3.7% y/y in Q3 12
4. REAL SECTOR 13
4.1 GDP, forecasts 13
Bulgaria’s GDP growth slightly slows to 3.5% y/y in Q3, flash estimate shows 13
EC raises Bulgaria’s 2016, 2017 GDP growth forecasts 14
EBRD raises Bulgaria’s 2016, 2017 GDP growth forecasts to 2.8% 15
4.2 Inflation 15
4.2.1 Consumer price index 15
Bulgaria’s CPI deflation steadies at 0.6% y/y in October 15
4.2.2 Producer price index 17
Bulgaria’s annual PPI deflation eases to 2.4% in September 17
4.3 Industry and Trade 17
4.3.1 Industrial production 17
Bulgaria’s industrial production growth speeds up to 3.3% y/y in September 17
4.3.2 Construction volume 18
Bulgaria’s construction output decline steadies at 10% y/y in September 18
Bulgaria's building permits, new constructions data largely positive in Q3 19
4.4 Investment 19
Gross fixed capital formation drops 4% y/y in Q3, flash estimate shows 19
4.5 Labour and retail 20
4.5.1 Unemployment and wages 20
Bulgaria's unemployment rate edges up m/m to 7.9% in October, labour agency says 20
Bulgaria’s unemployment rate drops to 7% in Q3, labour force survey shows 20
Bulgarian nominal gross wage growth speeds up to 7.8% y/y in September 21
4.5.2 Retail 21
Bulgaria's retail sales growth decelerates to 2% y/y in September 21
5. EXTERNAL SECTOR AND TRADE 22
5.1 Balance of payments and current account 22
Bulgaria’s current account surplus jumps 2.2 times y/y in January-September 22
5.2 Trade 23
Bulgaria’s foreign trade deficit narrows 44% y/y in January-September 23
5.3 Foreign direct investment (FDI) 24
FDI in Bulgaria drops 21.1% y/y in January-September 24
5.4 External debt 25
Bulgaria’s gross external debt rises 0.6% y/y at end-August 25
5.5 Foreign reserves 26
Bulgaria's foreign reserves drop 1.1% in October 26
6. PUBLIC SECTOR 26
6.1 Budget 26
Bulgaria reports budget surplus of 3.8% of GDP in January-October 26
Bulgarian parliament adopts 2017 budget bill in first reading 27
Bulgaria’s fiscal reserve drops 1.5% in September 27
Bulgaria’s NEK, Russia’s Atomstroyexport agree on payment over cancelled Belene project 28
6.2 Government debt 29
Bulgaria’s central government debt drops 0.9% m/m at end-September 29
7. FOREIGN EXCHANGE 29
Bulgarian lev depreciates 3.3% against US dollar over past month 29
8. FINANCIAL SECTOR AND CAPITAL MARKETS 30
8.1 Banking system 30
Bulgarian banking sector profit rises 35% in January-September 30
Bulgaria’s M3 growth slows, non-government loans edge down y/y in September 30
Bulgaria’s deposit interest rates down, lending rates mixed m/m in September 31
Two candidates shortlisted to bid for Bulgarian Corpbank subsidiary Bank Victoria 32
Assets of Bulgarian resident investment funds rise 12% y/y at end-September 33
8.2 Interest rates and bond market 33
Bulgaria's long-term convergence interest rate drops to all-time low in October 33
8.3 Stock Market 34
Bulgarian bourse index SOFIX rises 4.9% in past month 34
8.4 Credit ratings 34
No rating actions on Bulgaria over past month 34
9. INDUSTRY AND SECTORS NEWS 35
France’s Total finds oil in Bulgarian offshore block in Black Sea 35
Romania and Bulgaria launch long delayed gas pipeline 35
Bulgarian supplier Bulgargaz forecasts 10.2% increase in natural gas price in Q1 2017 36
Bulgaria's gross electricity production drops 12.6% y/y in January-August 37
Bulgaria’s accommodation revenue rises 28.8% y/y in September 37
Foreign tourists in Bulgaria up 15.5% y/y in September 37
New car sales in Bulgaria rise 9.4% y/y in October 38
10. MAJOR CORPORATE NEWS 38
Bulgaria again extends deadline of concession procedure for Sofia Airport 38
Bulgarian electricity firm Energo-Pro Varna places €130mn bond 39
EBRD agrees infrastructure development loan to CEZ Bulgaria 39
Bulgarian Kalinel to open new production facility in Serbia’s Bosilegrad 40



Table 1 GDP, % y/y real (flash estimate) 13
Table 2 EC autumn forecast 15
Table 3 CPI, % y/y 16
Table 4 Domestic market PPI, % y/y 17
Table 5 Current account, € mn 23
Table 6 Foreign trade, FOB/FOB, BGN mn 24
Table 7 Gross external debt, € mn 25
Table 8 Fiscal reserve, BGN mn 28
Table 9 Central government debt, € mn 29
Table 10 Money supply, domestic credit, loans 31
Table 11 Electricity data, GWh 37

Figure 1 Consumer confidence indicator 12
Figure 2 GDP real growth, % 14
Figure 3 Bulgaria CPI, % y/y 16
Figure 4 Domestic market PPI, % y/y 17
Figure 5 Industrial output 18
Figure 6 Construction output 19
Figure 7 Unemployment rate (labour force survey) 21
Figure 8 Retail sales 22
Figure 9 FDI in Bulgaria, € mn 24
Figure 10 Gross external debt, € mn 25
Figure 11 Foreign reserves 26
Figure 12 Fiscal reserve, BGN mn 28
Figure 13 Daily exchange rate, BGN per 29
Figure 14 Average interest rates on new euro loans 32
Figure 15 Long-term convergence interest rate 34
Figure 16 SOFIX 34

Number of pages: 40
Release Date: Wed, 23 Nov 2016