2013-01-01 13:24:52 - Bulgaria Business Forecast Report Q1 2013 - a new country guide report on companiesandmarkets.com

Significantly weaker external demand for Bulgaria´s exports and a domestic banking sector highly exposed to the eurozone sovereign debt crisis will continue to weigh on the country´s economic outlook in the coming years.

We expect a dispute over the cancellation of the Belene power plant project to increase tensions between Bulgaria and Russia, which controls Bulgaria´s energy supplies. Although we do not expect Moscow to retaliate with higher energy prices, the issue may still hit the ruling GERB party´s popularity ahead of parliamentary elections in 2013.

Major Forecast Changes

We expect the Bulgarian economy to slow in H212 as demand from the eurozone weakens, forecasting full-year real GDP growth of 0.1%. Conversely, we expect a recovery in the bloc, coupled with some fiscal

 

 

loosening ahead of 2013´s parliamentary elections, to drive GDP growth of 1.4% in 2013.

We forecast Bulgaria´s budget deficit to narrow to from an estimated 2.1% in 2011 to 1.3% and 1.1% in 2012 and 2013 respectively. The economy is in robust fiscal health, with the second lowest public debt load in the EU, but Bulgaria will need to gradually rebuild its fiscal reserve as the economy recovers in 2013 in order to maintain long-term confidence in the currency board.

We have revised up our end-2012 inflation forecast to 3.1% year-onyear (y-o-y), from 2.0%, following a 13.1% hike in electricity prices and higher food prices caused by a summer heatwave damaging crops. However, we maintain our forecast for inflation to average 2.9% in 2013 .

Key Risk To Outlook

A disorderly default in Greece would wreak economic havoc on Bulgaria, whose economy is highly exposed to the beleaguered Hellenic nation via trade, investment and banking sector avenues.

Although this risk is somewhat mitigated by recent developments, in the event of a deterioration in the eurozone sovereign debt crisis, we would be forced to revisit our forecasts for Bulgaria across the board.

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