Country Report Bulgaria April 2009

Outlook for 2009-10

• Citizens for European Development of Bulgaria (CEDB), the main opposition party, looks set to lead the government after the election due in mid-2009.
• The EU will keep Bulgaria under close scrutiny, continuing to demand judicial reforms, and more tangible results in the fight against corruption and organised crime.
• Given Bulgaria's large external debt and current-account deficit, the Economist Intelligence Unit assumes that Bulgaria will require some measure of external financial assistance from the IMF and the EU.
• Real GDP growth is forecast to contract by 2.4% in 2009, following estimated growth of 6% in 2008, mainly because of the very limited access to finance and a further deterioration in our assumption for euro zone growth.
• Growth is forecast to rebound modestly, to 1.4%, in 2010
• Inflation will continue to trend down from the high rates seen in 2008 as domestic demand pressures ease, food inflation drops and world oil prices remain low. Inflation is forecast to average 4.1% in 2009 and 3.6% in 2010.
• Owing to a sharp contraction of domestic demand, we forecast that the current-account deficit will narrow to 14.1% of GDP in 2009 and 10.2% of GDP in 2010, from an estimated 23.4% of GDP in 2008.

Monthly review

• The Union of Democratic Forces (UDF) and the Democrats for a Strong Bulgaria (DSB) have formed a coalition in order to boost their chances of entering the next parliament, after the elections due in mid-2009.
• The consolidated state budget reported a surplus in January 2009 of Lv973m (US$658m), which is double the surplus in January 2008.
• In February the budget began to suffer from falling revenue; the account of the government with the Bulgarian National Bank (BNB, the central bank) edged down further in March.
• The prime minister, Sergei Stanishev, announced that Bulgaria is seeking support for a fast entry into the EU's exchange-rate mechanism (ERM2).
• Year-on-year inflation fell to 6% in February from 7.1% in January.
• Industrial production dropped by 13.3% year on year in January, the sharpest contraction since the series was introduced in 2001.
• In January 2009 the trend of narrowing trade and current-account deficits continued, with both deficits around 45% smaller year on year.

Source: Country Report