S&P Projects 3% Growth for Bulgaria's GDP in 2015
Rating agency Standard&Poor's has affirmed Bulgaria's long- and short-term sovereign credit ratings to BB+/Bm respectively.
In a statement, it has noted the country's financial sector continues to face important challenges, but has also pointed to the "efforts... to mitigate risks, including an asset quality review slated for 2016".
It has also predicted 3% growth for the Bulgarian economy this year.
"In the absence of the political uncertainty that has characterized recent years and in conjunction with lower energy prices, a reduction in unemployment, and acceleration in the absorption of EU funds, domestic demand has continued to strengthen. Demand for Bulgarian exports has also been strong, with export volumes increasing by nearly 8% in the first three quarters of 2015. These factors have contributed to real GDP growth of 3% year on year in the first nine months of the year. We have accordingly revised up our estimate of real GDP growth to 3% in 2015, against our previous estimate of 1.5%." S&P has explained.
However, the agency believes "the prospects for 2016-2018 are somewhat weaker" due to the beginning of a new EU budget cycle (with EU funding substantially contributing to growth).
"the strength of the recovery, independent of elevated government spending, is still uncertain, as domestic demand has struggled to gain momentum in the years following the 2008-2009 global financial crisis. Although we estimate that Bulgarian lev (BGN)-denominated nominal GDP will be nearly 20% higher than its 2008 peak, we expect domestic demand will only exceed its 2008 level in 2016."
Reversal of foreign inflows into the banking, construction, and property sectors is pointed as an important reason for the country's weak recovery, alongside the "structural drag from demographic challenges" (with a population that shrank by nearly 15% in 2 decades).
"The banking sector is also vulnerable to external factors, given the large presence of Greek subsidiaries, which together account for about one-fifth of the sector's assets," S&P notes.
Outlook on Bulgaria is also stable, based on "the balance between the economic and fiscal risks... from potential vulnerabilities in the financial sector against the fiscal space arising from still-low general government debt".
To see its rating upgraded, Bulgaria has to effectively address "governance issues, thereby boosting its growth potential and attracting higher foreign direct investment to tradeable sectors" or should ensure that the economy expands faster allowing for a more rapid consolidation of general government finances.
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