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Albeit on an unsure footing, Bulgarian recovery
is set to progress
Prepared for workshop on the Environment and
Energy Efficiency organized by Confindustria
Andrea Casini, Deputy Chairman of the MB and COO
of UniCredit Bulbank
Sofia, 9 June 2015
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Wide range of data has clearly demonstrated that
the recovery has taken a stronger hold in the
beginning of 2015
Massive real 13.1 surge in Bulgarian exports in
the past six months for which data are available
outperforms all countries in the CEE emerging
market region, thereby providing once more a
clear evidence that countrys economy remains
competitive. In May 2015, the headline
economy-wide economic sentiments indicator
reached its highest level in seven years,
suggesting that the economy entered 2015 in a
more optimistic mood.
Cumulative change in Export of Goods Services
in CEE countries since 3Q 2008 (3Q 2008 100),
in
Economic Sentiment Indicators (May2006
May2015)
Source Eurostat, UniCredit Bulbank
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Improving EU funds absorption remains a key
driver of recovery
EU funds absorption rate rose to 81 in the end
of April, suggesting that if the recent trend is
extrapolated looking ahead the final absorption
rate may go up to around 85-87 in the end of
this year, which is a pretty decent result given
extraordinarily weak start of the process, when
in the first four consecutive years from 2007-10
cumulative absorption rate was just 15.6. Five
out of total of seven operating programs, which
will entitle Bulgaria to get another EUR 7.4bn in
the next program period, have been already agreed
with the EU administration, while the remaining
two are likely to receive green light soon.
Absorption of EU funds (2010 2015)
EU funds available under specific Operational
Programs in the period 2014-20
Source EU Structural funds-Single information
web portal, UniCredit Bulbank Grey background
colour signal that the OP are not approved yet.
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Recent acceleration of exports rests on sound
foundations
It is attributable to the gradually increasing
production capacities in the manufacturing and
some services sectors. Bulgarian export recovery
has benefited more from the extraordinarily
favorable external environment in the past few
quarters when compared with those of most of its
peers. Lower energy prices have been more
supportive to Bulgarian export, as its economy
has been more energy intensive than most of the
CEE emerging markets.
Expenditure on acquisition of tangible fixed
assets by economic activity (2009 2014)
Current account to GDP (2007 2016f)
Source NSI, BNB, UniCredit Bulbank
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Fiscal policy is likely to remain growth neutral
this year
Over-conservative macro projections used to
prepare the fiscal plan for this year in
combination with a solid progress in tax
collection helped fiscal revenues to
significantly outperform the target for the first
four months in 2015. If government own estimates
prove correct tax revenues may exceed the
budgeted ones with BGN 1.5bn of 1.8 of GDP for
the whole year. We think the government will use
some two-thirds of the revenues windfall to boost
spending, while the remaining one-third will go
to cut deficit to around 2.6 of GDP (compared
with the 3 of GDP target).
State budget balance execution vs. plan as of
GDP (2005-2016f)
Consolidated Fiscal Program, national methodology
(2014 2015)
Source NSI, MF, UniCredit Bulbank UniCredit
Bulbank Economic Research forecast for 2015 GDP
data.
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Albeit on an unsure footing, the recovery is
progressing, and we expect GDP growth to
accelerate to 2.1 this year
Less than a year ago Bulgaria was seen as a
country backsliding on reforms, which was
struggling to overcome the negative impacts from
frozen EU funds, raising political uncertainty
and collapse of the fourth largest local lender.
Today all these three factors are not holding
back growth and jobs recovery any longer. Whats
more, the government has taken many of the
difficult decisions needed to stabilize the
ailing energy sector and Bulgaria is likely to
bring its overreliance on Russian as a major
supplier of primary energy inputs and
particularly of natural gas to more manageable
levels in the end of this decade. Nevertheless,
there is significant remaining slack in the
economy which is perhaps most clearly signaled by
the double digit unemployment and almost stalled
income convergence. Despite better-than-expected
exports expansion and markedly improved
absorption of EU funds, Bulgarian economic and
jobs recovery will remain uneven. Above all, this
will reflect slow progress on structural reforms
in a number of crucial areas such as cutting back
corruption, overhauling problematic judiciary
system and restructuring dangerously
underfinanced education sector. The need for
further balance sheet adjustment in some sectors
where debt remains elevated is likely to hamper
growth as well.
Source BNB, NSI, MF, UniCredit Bulbank ¹Basic
balance the sum of the current account and net
FDI.
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