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Political Uncertainty Is Holding Back Bulgarian Growth
If it weren't for the politics, after a period of fiscal austerity and the eurozone crisis, the Bulgarian economy would now be more than ready for a pretty impressive recovery. But politics have intervened on the downside. A deeply unhappy and angry electorate forced one government out of office earlier this year and has put its successor under threat of further big protests and upheavals. Not surprisingly, the centre-left coalition under Prime Minister Plamen Oresharksi - which prefers to call itself 'technocratic' - is proceeding with extreme caution. Some stimulus is being injected into the economy through an improving performance from net exports, together with the government's decision to reverse utility price increases and
to allow the fiscal deficit to widen a little. But against this, high levels of political uncertainty have descended like an anaesthetic cloud on the country's economy, paralysing household consumption growth and putting investment on hold. In this context, BMI is holding to its previously stark predictions. Confirmed, in our view, by weak Q213 data, we predict GDP growth of only 0.5% this year, rising to 1.5% in 2014.
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Since the economy has been almost at a standstill in 2013, we have trimmed back some of our estimates for the Port of Varna in that year. A recovery will make itself felt in 2014 as both gross tonnage and box traffic are set to rise at above-GDP rates. This is in part explained by a more promising outlook on the trade front: measured in real terms, 2014 trade will grow by 5.5%, up from an estimated 4.8% in 2013. Over the medium term, plans to concession the port's container operations offer upside risk. We highlight that there has not yet been any interest in this, and the country's privatisation drive is centred on concessioning ports on Bulgaria's part of the Danube River instead.
Headline Industry Data
* 2014 Port of Varna tonnage throughput forecast to grow 5.3%; over the medium term (to 2018) we project an average annual increase of 4.6%.
* 2014 Port of Varna container throughput forecast to grow 6.0%; over the medium term we project a 6.7% average annual increase.
* 2014 total trade growth forecast at 5.5%.
Key Industry Trends
Thessaloniki Wants To Build Bulgarian Transit Business
The Greek port of Thessaloniki is opening a special office to deal exclusively with Bulgarian companies. Chief executive Stylianos Aggeloudis says trade between the Greek port and Bulgaria has been growing, although it is still not back up to pre-crisis levels. Containers shipped to or from Thessaloniki to Bulgaria totalled 5,858 in 2009, rising to 16,030 in 2012, an impressive rate of growth but still not enough to match the pre-crisis number of 35,518 TEUs achieved in 2007. Aggeloudis said that, in geographical terms, the Bulgarian business is showing the fastest growth for the Greek port. He did acknowledge, however, that the construction of an intermodal railway link between Thessaloniki and the Bulgarian capital, Sofia, would significantly boost transit trade volumes. He called on his Bulgarian customers to lobby their government for greater action on this front.
Grains Shipments Through Varna Are On The Up
The port of Varna in Bulgaria is expected to register a rise in grain exports in 2013. The port processed some 450,000 tonnes of grain cargo in July 2013, including wheat, barley and corn, according to the press office of the port. The port exported nearly 238,000 tonnes of grain in the first seven days of August. EU countries, such as Belgium, Cyprus, France, Greece, Italy, Spain and Portugal, as well as other countries like Lebanon, Libya and Saudi Arabia, are the main export destinations.
Plenty of 10,000 TEUs Box Ships Around, But Few In The Black Sea
A report by SeaIntel Maritime Analysis shows that most Black Sea ports are not yet able to handle 10,000 TEUs container ships, as the facilities are not ready and the ports themselves have low productivity. This is despite the fact that, with the current overcapacity in the container industry and the large influx of new 10,000 TEUs vessels expected in the next few years, 'the carriers are constantly searching for new trades to deploy their large vessels effectively on.' However, 'only Ambarli and Constanta currently have the operational capabilities to handle 10,000 TEUs vessels, while Odessa will get the ability in future, if the vessels can dock on two consecutive quays'. Ambarli is a Turkish port, Constanta is Romanian, and Odessa is Ukrainian. Bulgaria's two main Black Sea ports, Burgas and Varna, do not have the facilities to deal with the larger box ships.
Risks To Outlook
Domestic politics is still the main downside risk factor. The potential for renewed political instability, or a re-escalation of protests, would harm both business and consumer sentiment while further dissuading foreign investment. In this scenario, headline growth could continue decelerating into 2014. Another downside risk is presented by the possibility that the current bout of deflation will persist for a prolonged period. Falling prices have the potential to delay investment and consumption decisions, reinforcing and accelerating the downturn in domestic demand in a 'deflationary spiral'.
As things currently stand we see few upside risks to our forecast. But it is possible that the eurozone recovery may be stronger than expected, boosting Bulgarian exports and trade volumes. It is worth keeping an eye on Bulgarian exports to Germany as they may surprise on the upside.
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