2012-02-11 16:49:36 - : Fast Market Research recommends "Bulgaria Business Forecast Report Q2 2012" from Business Monitor International, now available

Core Views We expect Bulgaria's economic growth to be weighed down by slowing aggregate demand in the eurozone and persistent concerns over the eurozone debt crisis. We believe the slowdown in external demand will weigh on Bulgarian exports, which when combined with only moderate growth in household spending, will feed through to lower real GDP growth in 2012. Politically, we expect 2012 to be a difficult year for the ruling party. A combination of high public dissatisfaction with the government's seeming lack of progress in the fight against corruption and failure to gain entry to the Schengen visa-free travel zone, combined with a weaker economic growth outlook will likely pose challenges to the government. That said, with the opposition disorganised

and weak, we do not expect the government to lose its mandate in 2012. We forecast the fiscal deficit to narrow to 1.9% of GDP from our forecast of 2.3% of GDP in 2011 as we expect Bulgaria's government to continue with its fiscally prudent consolidation efforts. A combination of recovering revenue streams and restrained public spending will work to bring the deficit down. That said, there remains the risk for an expansion of government spending in the event that growth slows more precipitously than we currently forecast. Major Forecast Changes The sharper than expected moderation in external demand in Q211 has seen us revisit our real growth forecasts for Bulgaria. We now expect the country's economy to grow by 2.7% in 2012 as net exports will be less supportive of growth. Moreover, we expect only a weak recovery in domestic consumption on account of slower growth in the eurozone weighing on broad based economic sentiment and economic expansion. Our forecast for Bulgaria's current account position has changed from a 2.7% of GDP deficit to a 1.0% surplus in 2011 owing to the very strong export performance in H111 which saw exports surge by 40.8% y-o-y. We then forecast the current account to return to a deficit of 1.1% of GDP in 2012. We expect the merchandise trade deficit to widen in 2012 on recovering domestic consumption that will push up imports. Preventing a more severe widening of the deficit will be the services and transfers accounts which we foresee remaining in surplus over the forecast period. We have revised down our forecast for the consumer price inflation (HIC P) to average 3.8% in 2011 and 3.4% in 2012, from 4.5% and 4.2% previously. Our expectation for the global economic slowdown to translate to weakening of already weak domestic demand-pull inflationary dynamics underpins this revision. Forestalling a more pronounced moderation in HIC P will be still-high commodity prices that will keep cost-push inflation elevated. Key Risk To Outlook A disorderly default in Greece would wreak economic havoc on Bulgaria, whose economy is highly exposed to the former via trade, investment and banking sector avenues. In the event of a severe credit event, we would be forced to re-visit our forecasts for Bulgaria across the board.
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