Country Report Bulgaria December 2008

Outlook for 2009-10

• Relations between the Bulgarian Socialist Party (BSP) and its partner in the ruling coalition, the centrist National Movement for Stability and Progress (NMSP), are likely to stay problematic until the next election, due in mid-2009.
• Citizens for European Development of Bulgaria (CEDB), currently in opposition, looks set to lead the government after the next election, although this is unlikely to lead to any significant shifts in economic policy.
• 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.
• Real GDP growth is forecast to slow from an estimated 6.3% in 2008 to 1.9% in 2009 and 2.6% in 2010, owing to the worsening outlook for accessing finance. Risks remain of a sharper slowdown if global conditions deteriorate further.
• Headline inflation will start to come down from the very high levels seen in 2008 as domestic demand pressures ease. Inflation is forecast to average 7.1% in 2009 and 4.3% in 2010.
• Owing to the expected significant slowdown in the growth of domestic demand, the Economist Intelligence Unit forecasts that the current-account deficit will narrow to 18.8% of GDP in 2009 and 10.5% of GDP in 2010.

Monthly review

• Recent opinion polls continue to confirm the lead of the CEDB over the BSP. However, with the current pattern of party support, it will again be difficult to form a coherent government with a stable majority after the election.
• Friction between the government and the CEDB intensified further owing to the ongoing dispute over control of the troubled central heating utility in the capital, Sofia.
• The government has revised down its economic growth forecast for 2009, but reaffirmed its commitment to running a significant budget surplus in 2009. However, the government's revised forecast of 4.7% growth is overoptimistic.
• The banking sector still appears healthy and profitable. So far none of the parent institutions of the banks operating in Bulgaria has experienced serious problems, but there are still risks in this area.
• Industrial output grew by 1.2% year on year in September, indicating a much slower performance in the third quarter compared with the first two quarters of 2008.
• In September, for the second month in a row, there was a small year-on-year contraction of the current-account deficit. The deficit remains at record levels.

Source: Country Report

This report covers the following industry codes:
SIC Code: 60
NAICS Code: 52