Country Report Bulgaria July 2009

Outlook for 2009-10

• Citizens for European Development of Bulgaria (CEDB), the main opposition party, is expected to lead the government after the election due in July 2009, although the make-up of the coalition remains far from certain.
• The EU will keep Bulgaria under close scrutiny, continuing to demand judicial reforms, as well as concrete results against corruption and organised crime.
• Given its large external debt and current-account deficit, we assume that Bulgaria will require some financial assistance from the IMF and the EU.
• Real GDP growth is forecast to contract by 3.8% in 2009, following estimated growth of 6% in 2008, mainly because of limited access to external finance and the poor economic outlook for the euro zone.
• Growth is forecast to rebound weakly, to 0.9%, in 2010.
• Inflation will continue to trend down from the high rate in 2008 as domestic demand pressures ease, food inflation drops and world oil prices remain low relative to 2008. Inflation is forecast to average 3.5% in 2009 and 3% in 2010.
• Owing to a sharp contraction in domestic demand, we forecast that the current-account deficit will narrow to 13.1% of GDP in 2009 and around 10% of GDP in 2010, from 25.2% of GDP in 2008.

Monthly review

• The CEDB and another centre-right opposition grouping, the Blue Coalition, outlined similar policy priorities: to forge better relations with the EU, to improve the rule of law, and to focus on economic efficiency and reform.
• Tax revenue continued its downward trend in April, falling by 18.6% year on year, whereas expenditure continued to increase strongly, by 20%.
• Owing to the yearly contribution of the Bulgarian National Bank (BNB, the central bank) to the budget, the general consolidated budget recorded a surplus of Lv161m (US$112m) in April, after deficits in February and March.
• The banking sector remained profitable in April, but at a much lower level than a year earlier, and lending activity was minimal.
• In April industrial production declined by 20.1% year on year, compared with declines of 16.9% and 17.7% year on year in March and February, respectively.
• Retail sales fell by 9.4% year on year, worse than the 8.4% and 6.4% year-on-year declines in March and February, respectively.
• Consumer prices dropped by 0.3% month on month in May; in year-on-year terms, consumer price inflation decreased to 3.9%, the weakest since July 2005 and down from 4.8% in April.

Source: Country Report

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