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Albeit on an unsure footing, Bulgarian recovery is set to progress

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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Albeit on an unsure footing, Bulgarian recovery is set to progress

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  1. 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

  2. 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 country’s 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 (May’2006 – May’2015) Source: Eurostat, UniCredit Bulbank

  3. 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.

  4. 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. Current account to GDP (2007 – 2016f) Expenditure on acquisition of tangible fixed assets by economic activity (2009 – 2014) Source: NSI, BNB, UniCredit Bulbank

  5. 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). Consolidated Fiscal Program, national methodology (2014 – 2015) State budget balance execution vs. plan as % of GDP (2005-2016f) Source: NSI, MF, UniCredit Bulbank *UniCredit Bulbank Economic Research forecast for 2015 GDP data.

  6. 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. What’s 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.

  7. THANK YOU FOR YOUR ATTENTION!

  8. Disclaimer This document is based upon public information sources, that are considered to be reliable, but for the completeness and accuracy of which we assume no liability. All estimates and opinions in the document represent the independent judgment of the analyst as of the date of the issue. We reserve the right to modify the views expressed herein at any time without notice, moreover we reserve the right not to update this information or to discontinue it altogether without notice. This document is for information purposes only, and is not intended to and (i) does not constitute or form part of any offer for sale or subscription or solicitation of any offer to buy or subscribe for any financial instruments (ii) does not constitute an advice for solicitation of any offer to buy or subscribe for any financial instruments, or any advice in relation of an investment decision whatsoever. The information is given without any warranty on an “as is” basis and should not be regarded as a substitute for obtaining individual investment advice. Investors must take their own determination of the appropriateness of investments referred to herein, based on the merits and risks involved, their own investment strategy and their legal, fiscal and financial positions. As this document does not qualify as direct or indirect investment recommendation, neither this document nor any part of it shall form the basis of, or be relied on in connection with or act as an inducement to enter into any contract or commitment whatsoever. Neither UniCredit Bulbank, nor any of its directors, officers or employees shall accept any liability whatsoever vis-a-vis any recipient of this document or any third party for any loss howsoever arising from any use of this document or its contents herewith. This document is not intended for private customers and the information contained herewith may not be disclosed, redistributed, reproduced or published for any purpose, without prior consent by UniCredit Bulbank.

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