2010-09-08 12:20:06 -
Bulgaria Business Forecast Report Q4 2010 - a new market research report on companiesandmarkets.com
Following the sharp slide into recession last year, we expect Bulgaria to endure another year of negative growth in 2010. With domestic demand still weak and being further depressed by the government´s internal devaluation policy, we see few sources of growth this year. Moreover, over the medium term, we expect growth to settle on a lower growth trajectory relative to the lead up to the economic downturn.
On the policy front, we continue to warn of the difficulties faced by the government in implementing structural reforms, particularly to social spending, in light of its deteriorating mandate. The deterioration in public finances during 2009 and likelihood of an even larger fiscal deficit in 2010 are reflective of the administration´s struggles in
overhauling the socialist policies of previous governments. We have long cautioned that support for Bulgaria´s minority Citizens for European Development of Bulgaria (GER B) government would deteriorate on the back of rising unemployment and slow progress on stamping out corruption. Latest opinion poll data certainly suggest that the honeymoon period could be over since last year´s parliamentary election. Going forward, we warn that a failure to reform public institutions and eradicate graft, as well as keeping a lid on the fiscal deficit, could see a further deterioration in government support as well as potential aid suspensions from the EU .
T he Bulgarian government has decided to delay its application to join ER M-2 following the emergence of a wider fiscal deficit than originally estimated for 2009. While the GERB administration hopes to kick-start the process next year, we warn that a deterioration in public finances, relatively high inflation (compared to the likes of Ireland) and concerns over the quality of official statistics, will continue to cause delays. As such, we do not foresee Bulgaria joining the exchange rate mechanism before 2012 and believe that 2013 is a much more likely target date.
While Buglaria´s banking sector successfully deflected systemic risks during the international financial crisis, and continues to muddle through the global economic downturn, we warn that the ongoing eurozone crisis will shine the spot light on Europe´s weaker economies and financial systems (as well as sovereign balance sheets). To this end, despite strong rates of capitalisation (equity increased 18.3% in 2009 and 11.1% year-on-year (y-o-y) in April according to the latest data), the fairly high degree of foreign currency debt remains a weak point of Bulgaria´s banking sector. For the time being we do not believe that Bulgaria´s banking sector is at risk from a systemic crisis, though warn of the growing risks to stability should the government fail to tackle the fiscal deficit or should the eurozone sovereign debt woes exacerbate.
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