Bulgaria Business Forecast Q1 2007

Content

• Chapter 1: Political Outlook
  • BMI Core Scenario
  • SWOT Analysis
  • BMI Political Risk Ratings
  • Domestic Political Outlook
  • Presidential Polls Set Scene For Stability
  • The re-election of Georgi Parvanov as president looks to be a done deal going into the second round on October 29
  • He secured a large majority in the first round on October 22, but the turnout was not big enough to give him an outright victory
  • Although the president's mandate is limited, his continued influence in foreign affairs will be broadly welcomed, and
  • should bode well for relations within the grand coalition
  • Foreign Policy
  • EU Green Light, But Strings Attached
  • Bulgaria and Romania will enter the European Union on January 1 2007, but will face the strictest monitoring conditions
  • of any accession states to date We believe the decision was the best for all concerned, as it should facilitate ongoing
  • reforms in both states, although we expect Brussels initially to implement political and financial restrictions
  • on both newcomers
  • Table: Bulgaria Cabinet And Other Key Posts (As Of 23 Oct 2006)
• Chapter 2: Economic Outlook
  • BMI Core Scenario
  • SWOT Analysis
  • BMI Economic Risk Ratings
  • Introduction
  • One In, One Out: Turning Shy On The Euro Club
  • Bloated fiscal deficits and rising inflation pressures are derailing many of the EU-10 countries' eurozone bids, with
  • several abandoning an official target altogether this year While a loss of commitment to eventual euro adoption will
  • sit badly with investors, the delay in joining the currency union should not threaten stability in itself, provided convergence
  • with the eurozone continues Several states are now considering the merits of allowing more time for real economic
  • convergence before handing over control of monetary policy to the ECB
  • Economic Activity
  • Q2 GDP Growth Exceeds Expectations
  • GDP growth has positively surprised in H106, reaching 61% We have subsequently raised our full-year forecast to 61%,
  • and hold a favourable outlook for the economy, based on an expectation of a gradually improving external position
  • once Bulgaria enters the EU
  • Table: GDP, Output & Population
  • Fiscal Policy
  • Relative Fiscal Extravagance Penned For 2007
  • We have raised our forecast for the end-year budget surplus, expecting it to reach an impressive 33% of GDP This
  • over-performance will make next year's surplus target of just 08% of GDP an even greater turnaround from recent
  • fiscal tightening The proposed infrastructure spending and tax cuts should improve the business climate going f
  • orward, but the combined economic stimulus could exacerbate current imbalances
  • Table: Government Finances
  • Monetary Policy
  • Inflation Pressures Beginning To Ease
  • Inflation in Bulgaria has fallen from highs of more than 8% in recent months, as the impact of administered duty
  • hikes for alcohol and cigarettes fade, and food supplies are up from last year We expect this latest trend to continue
  • in H206 and over the forecast period, while remaining a key risk to Bulgaria's 2009 euro adoption target
  • Table: Consumer & Producer Prices
  • Balance Of Payments
  • Getting Worse Before Improving
  • Bulgaria's current account deficit continues to widen at a phenomenal rate, prompting us to revise up our end-year
  • forecast to 15% of GDP However, our core view, which sees robust FDI mitigating risk in the short term, and accelerating
  • exports improving the external position in the medium term, is unchanged We do not foresee undue pressure on the
  • currency peg, which is crucial for economic stability, although this may change if current trends continue long into 2007
  • Table: Current Account
  • Foreign Direct Investment
  • Can South East Europe Be The Next Star FDI Performer?
  • The Central Europe and Baltics (CE&B) region has been the prime recipient of foreign direct investment (FDI) inflows
  • into the emerging Europe region, and we expect this to continue over the coming years However, we can foresee over
  • the long term, and perhaps beyond our forecast period, the potential for South-East Europe (SEE) to become a very major
  • FDI destination Not only is it likely that new FDI per capita rates will rise, but nominal investment could well prove to
  • be very large on the back of the low base from which these economies are coming
• Chapter 3: Special Report
  • BMI Sovereign Risk Ratings
  • What And Where Are The Risks?
  • Table: BMI Sovereign RIsk Ratings
  • Emerging Europe
  • Diverging Ratings Trends
  • Table: Emerging Europe Sovereign Ratings - Evolution of Ability to Pay
  • Table: Emerging Europe Sovereign Ratings - Evolution of Willingness to Pay
  • BMI Sovereign Ratings Index Methodology
• Chapter 4: Business Environment
  • BMI Core Scenario
  • SWOT Analysis
  • BMI Business Environment Risk Ratings
  • Legal Framework
  • Labour Force
  • Table: Employment Indicators
  • Table: Demographic Indicators (2005)
  • Foreign Investment Policy
  • Table: Bulgaria Annual FDI Inflows
  • Table: Emerging Europe Annual FDI Inflows
  • Foreign Trade Regime
  • Table: Top Export Destinations, US$mn
  • Table: Bulgaria Exports
  • Tax Regime
• Chapter 5: Key Sectors
  • Retail
  • Table: Retail indicators
  • Telecommunications
  • Table: Bulgarian Telecoms Sector - Historical Data & Forecasts