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September 2011
Highlights
In the second quarter economic growth accelerated to 2.2% yoy, due to positive
dynamics of consumption.
Exports continued stepping up rapidly (by 12.3% yoy), while investment
contracted again.
Savings in the economy exceeded 25% for the period July 2010-June 2011,
fully covering investments. A reflection of those dynamics is the positive current
account balance for this period.
In August a monthly deflation of 0.3% was recorded. The main factor for the
decline in the price level was the continuing decline of food prices.
Labour productivity grew by 6% yoy in the second quarter. This is the fifth
consecutive quarter in which the indicator rose by over 5% yoy.
Unemployment remained high – in August it was 10.7%. Seasonal factors had a
relatively small positive effect on the labour market during the summer months.
The budget deficit for August was very small – BGN 10.6 mn. The accumulated
deficit from the beginning of the year was BGN 731.1 mn (1% of GDP), and the
prospects for better performance against the annual target deficit of 2.5% are
very good. The fiscal reserve was BGN 5 bn at the end of August, by BGN 500
mn above the legal minimum.
In August BNB’s FX reserves accrued by EUR 579 mn. The coverage of the
monetary base by reserves was 179.7%, significantly above the minimum of
100% required for the stability of the currency board.
Analysts: The increase in deposits of households and businesses returned to normal –
Kaloyan Ganev, PhD respectively EUR 181.8 mn and EUR 84.7 mn on a monthly basis, after the
extremely high growth in July.
Chief Economist
kaloyan.ganev@raiffeisen.bg The current account surplus amounted to EUR 641.7 mn in July. The high
monthly value reflects revenues from tourism, which recorded a slight increase
Hristiana Vidinova on a yearly basis (2.8%).
Senior Analyst
hristiana.vidinova@raiffeisen.bg For the first seven months of the year the trade deficit improved by 63% yoy,
falling from EUR 1.6 bn as of July 2010 to EUR 591 mn by July 2011.
The financial account was negative again in July – at the amount of EUR -685
mn, mainly due to the fact that banks invested abroad currency and deposits at
the value of EUR 545 mn. Net FDI inflow remained small – EUR 61.3 mn.
1
Real Sector
GDP growth accelerates slightly to 2.2% yoy in Q2
after a rebound of consumption
Figure 1: GDP by final use components ( yoy
real growth, % )
40.0 In the second quarter of 2011 the value of GDP reached BGN
30.0
18.8 bn. Real economic growth accelerated from 1.5% yoy in
20.0
10.0
Q1 to 2.2% in Q2. Raiffeisen RESEARCH's forecast envisages
0.0 growth to accelerate to 3% yoy in the next quarter.
-10.0
-20.0 The economic advance gained momentum due to the domestic
-30.0
demand’s dynamics. Unlike the period from January to March,
-40.0
I II III IV I II III IV I II III IV I II when it shrank by 5.3% compared to a year earlier, in April-June
2008 2009 2010 2011
the decline came to a halt. In the second half of 2011 the
Final consumption
Export of goods and services
Investment in fixed capital
Import of goods and services
domestic demand is projected to increase by the rate of 4.3%
GDP yoy. Meanwhile, export growth slowed from 25.8% in the first
quarter to 12.3% in the second, which was expected in view of
Source: NSI, Raiffeisen RESEARCH
the high base in April-June 2010. In the second half of the year
Figure 2: Saving (% of GDP, annualized) this trend is expected to continue and export growth to remain
28.0
below 5% yoy.
26.0
24.0 Consumption noted most favorable development from the
22.0
beginning of the recession in the country. Although in some
quarters of 2010, it realized increases on an annual basis, they
20.0
18.0
16.0 were small and followed by declines. Therefore, no sustainable
14.0
trend of recovery of the indicator was observed. In Q2 2011
12.0
10.0
consumption growth reached 2.5% yoy which, combined with
8.0
I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II
the real growth in trade turnover over the same period of 2010,
2003 2004 2005 2006 2007 2008 2009 2010 '11 can be regarded as a positive indicator for the development of
consumer expenditure. This growth was a result of an increase of
Source: NSI, BNB, Raiffeisen RESEARCH
individual consumption by 2.4% yoy and of collective
Figure 3: Contribution by sectors to growth of consumption by 3.3%. The data exceeded Raiffeisen
expenditures on tangible fixed assets (p.p.) RESEARCH’s expectations and the flash estimates of consumption
1
16.0 Public administration, defense, growth , which were published last month by NSI.
education, human health
11.0
Nevertheless savings in the economy continued accruing due to
Professional, scientific and support
services
6.0
1.0
Real estate activities
the more rapid increase in gross national disposable income
-4.0
Financial and insurance activities compared to that of consumption. Savings for the past 12 months
-9.0
Information and communication amounted to 25.5% of GDP.
Trade, transportation,
-14.0
accommodation and food service
-19.0 Construction
-24.0 Industry
-29.0
Agriculture
І ІІ III IV І ІІ
2010 2011 Other services
Source: NSI, Raiffeisen RESEARCH
1
Based on seasonally non- adjusted data of NSI on GDP at constant
2005 prices and yoy real growth rates
2
Real Sector
Figure 4: Saving-investment balance (% of
GDP, annualized)
40
35
30
Meanwhile, the dynamics of investment remained weaker than
25
20
expected, having continued to contract (7.1% decline versus the
15 second quarter of 2010.) Although the negative trend lost
10 momentum compared to the first quarter, when the decrease was
5 19% yoy, for the whole 2011 investment is likely to remain
0
below the 2010 volume. Without a significant increase in FDI
I II III IV I II III IV I II III IV I II III IV I II
inflows into the country or extension of the credit activity no
2007 2008 2009 2010 2011 pronounced improvement of the investment activity in the country
C/A deficit
Investment
C/A surplus
Saving
could be expected in the second half of 2011.
Source: NSI,BNB, Raiffeisen RESEARCH
As a result of increased savings and reduced investments, for the
Figure 5: GVA by sectors (yoy real growth, %) period July 2010-June 2011 national savings fully covered
50.0 investment (1.1 times), which is a reflection of the positive current
40.0 account balance for the period.
30.0
20.0 On the supply side, in Q2 2011 industry was the major
10.0 contributor to the increase of gross value added (GVA). It posted
0.0 a real growth of 6.8% compared to Q2 2010, accelerating
-10.0
compared to the 3.2% yoy increase in Q1 2011.
-20.0
I II III IV I II III IV I II III IV I II
2008 2009 2010 2011
The favourable development was mainly stemming from the
Agriculture Industry Services Adjustment GDP
industrial sectors except construction, whose value stepped up
Source: NSI, Raiffeisen RESEARCH over the second quarter of 2010 by 7.9%. Therefore, the process
of rebound of the industry, which began in the second quarter of
Figure 6: Industrial production (index, 2010 mainly under the influence of increased foreign demand,
2005=100)
remains on track.
140
120
As a result, the volume of industry's gross value added
100
accounted in the second quarter of 2011 exceeded all realized
80
values for the same period of the previous years, including the
60
period before the recession. However, the volume of production,
40
while also recovering, still lags behind the pre-crisis levels. This
20
indicates that the companies have managed to reduce their
0
І ІІ ІІІ ІV І ІІ ІІІ ІV І ІІ ІІІ ІV І ІІ
expenditures on intermediate consumption to a greater extent as
2008 2009 2010 2011
compared to the decline in production, thus leading to positive
Mining Manufacturing development of the value added. Overall, the industrial
Electricity, gas and air cond. supply Industry - total
production can be expected to continue growing in the following
Source: NSI, Raiffeisen RESEARCH
months, especially if grow of the domestic demand gains
Figure 7: Construction production (yoy growth, momentum.
%)
50.0
40.0
30.0
20.0
10.0
0.0
-10.0
-20.0
-30.0
-40.0
I II III IV I II III IV I II III IV I II
2008 2009 2010 2011
Consrtuction - total Building construction Civil engineering
Source: NSI, Raiffeisen RESEARCH
3
Real Sector
The development of the construction sector, however, remains
unfavourable. The decline in production of the civil engineering
accelerated from 18.8% yoy in the first quarter to 24% in the
Figure 8: GVA and GDP (yoy real growth, %) second. Building construction also continued to decline on an
4.0
annual basis - 9.7% compared to Q2 2010
2.0
0.0 In the second quarter of 2011, gross value added the services
-2.0 sector realized minimal positive yoy growth - 0.2%. For
-4.0
-6.0
comparison, in the first quarter of the year the sector reported a
-8.0 decline at the same pace. During the period April-June 2011
-10.0 almost all branches of the services demonstrated positive change
I II III IV I II III IV I II
of their value added. Most dynamic pace of recovery was
2009 2010 2011
realized by culture, sport and entertainment, other activities,
GVA GDP
activities of households as employers; undifferentiated activities
Source: NSI, Raiffeisen RESEARCH of households by production, where value added augmented by
26.3% on a yearly basis. The development of value added in
trade, transport and communications, hotels and restaurants was
negative- their GVA shrank by 3.5% compared to second quarter
of 2010.
Agriculture was the only economic sector with negative growth of
its value added in the quarter - 1.9% over the same period last
year. Nevertheless, according to preliminary data, this year's
harvest exceeds by volume and quality that in 2010. Therefore,
positive growth can be expects in the third quarter of this year,
which could lead to a positive increase on an annual basis of
agricultural GVA for the whole year.
As a result of the described developments, the total gross value
added in the economy grew by 2.2% compared to second
quarter of 2010. The adjustments (taxes less subsidies) dynamics
was similar, and therefore gross domestic product grew at the
same pace.
4
Inflation
Food price decline continues
The overall price level decreases by 0.3% in August
Figure 9: Inflation rate (% mom) In August the price level decreased by 0.3% compared to July
1.5%
(our forecast was for +0.3%). The deflation was practically due
1.0%
to the continuing decline of food prices which amounted to 0.6%
that month. The largest decreases in this group were registered
0.5%
for fruits (4.4%) and vegetables (5.4%). They stemmed
predominantly from the good harvest which occurred in
0.0%
-0.5%
agriculture and lead to larger amounts and better quality of the
-1.0% supplied produce. In this group, more notable were also the
-1.5% monthly price increases of fish and fish products (by 1.4%) and
I III V VII IX XI I III V VII IX XI I III V VII
of milk, dairy products and eggs (by 0.8%). For non-food
2009 2010 2011
Inflation Seasonally adj. inflation, 12-month moving average
products, an overall price decline of 0.1% was recorded. Shoe
prices decreased by 2.5%, and most probably season sales
Source: NSI, Raiffeisen RESEARCH were largely reflected in this value. The liquid fuels prices
decreased by 2.9%, due to the decrease of the crude oil prices
during that month. Amongst the more notable price declines
Figure 10: Contributions to the inflation rate were those of furniture and furnishings, as well as of clothes –
from the beginning of the year (p. p.) respectively by 1.4% and 1.3%. At the same time, solid fuels
0.8%
and gas underwent price increases respectively of 0.9% and
0.7%. It is worth noting the price increases of jewellery, clocks
0.7%
and watches – by 10.5% on a monthly basis, due to the hike in
the price of gold. Concerning services, their price level remained
0.6%
0.5%
unchanged vis-a-vis July. A continuing increase in the price of
0.4%
transport services was observed, following from the higher prices
0.3% of fuels in the last several months. With the approaching end of
0.2% the summer tourist season the prices of package holidays
0.1% decreased by 1.6%. In catering prices increased as a whole by
0.0% 0.2% on a monthly basis, and in particular the prices in
restaurants, cafes and the like the prices increased by 0.2%, and
Source: NSI, Raiffeisen RESEARCH in canteens – by 0.7%.
The inflation accumulated from the beginning of the year
amounted to 1.5%. The contribution of foods was 0.7 p.p., of
Figure 11: Inflation rate (% avg)
non-foods and services – by 0.3 p.p. each, and of catering – 0.1
14% p.p. Compared to August 2010 the inflation rate was 4.1% (a
12% deceleration compared to the 4.4% registered in July, and by
10% 0.6 p.p. lower that the forecast), and the annual average rate
8% was 4.5% (4.4% in July; the figure was lower by 0.1 p.p. than
6% the forecast). By the harmonized index of consumer prices, the
4% inflation rate was also negative (-0.1%). The cumulative rate
2% compared to December 2010 was 1.3%, compared to August
0% 2010 – 3.1%, and the annual average value was 3.8%.
I III V VII IX XI I III V VII IX XI I III V VII
2009 2010 2011 By the national consumer price index we expect a monthly
inflation rate of 1% in September. Respectively, the expected yoy
Source: NSI, Raiffeisen RESEARCH inflation rate is 4.4%, and the annual average one – 4.6%.
5
Labour market
Labour productivity with a new remarkable growth
The recovery of employment during the summer is weaker than the expected
In the second quarter of 2011 labour productivity2 increased by
6% compared to the same period of the previous year. This
Figure 12: Labour productivity growth (%)
increase was driven by two determinants – the decline in
10% employment and the growth of GDP. Having in mind the fact that
8% the decline of employment was larger than the increase of GDP,
6% it had a prevalent influence on the dynamics of productivity.
4%
2% Compared to the first quarter of 2011 there was a small
0% acceleration in the labour productivity growth (the value of this
-2% indicator was then 5.2%). The second quarter of the current year
-4% was the fifth one in a row in which a considerable rate of
-6% increase was observed. As far as the economy of the country is
I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II
2005 2006 2007 2008 2009 2010 2011
registering positive economic growth rate, the increase of
productivity is an indication of a favourable development of
Source: NSI, Raiffeisen RESEARCH production related to increases in its efficiency, and therefore in
its competitiveness.
In July and August (the two months of Q3 for which Eurostat data
Figure 13: Unemployment rate (seasonally
adjusted, %)
are available) the labour market was influence to some extent by
the traditional seasonal factors, and in the first of twose two
14.0% months the unemployment rate fell to 10.7% by the seasonally
12.0% not adjusted data (while in June it was 10.9%), and then in
10.0%
August it climbed back to 10.8%. Nevertheless, the improvement
8.0%
which was observed in comparison with the previous quarters
6.0%
4.0%
cannot compensate for the increase in unemployment which was
2.0%
then accumulated. As a result of this, there was still an increase
0.0% in the unemployment rate on an annual basis (in August 2010 it
I II III IV V VI VII VIII IX X XI XII I II III IV V VI VII VIII was 9.4%). By the seasonally adjusted data at the same time
2010 2011 there was an increase in the unemployment rate respectively to
11.6% in July and to 11.7% in August 2011 (11.5% was the
Source: Eurostat, Raiffeisen RESEARCH
value in June 2011).
Generally speaking, the labour market is still lagging behind
with respect to its recovery. The positive development of the
economy of the economy continues being determined by the
developments in exports while the domestic demand, and
investments in particular, do not imply an expansion of the
productive potential, respectively the hiring of additional labour.
The expectations are that during the autumn months the
unemployment rate will register again some increases, and will
return to the levels observed during the first half of the year, after
the seasonal influences vanish.
2
Measured as GDP per person employed.
Fiscal Sector
A very small deficit in August: BGN 10.6 mn
The realized budget balance likely to outperform the planned value
Figure 14: Consolidated budget cash balance The budget deficit which was realized in August was BGN 10.6
(BGN mn)
mn (the value registered for July was BGN 70.8 mn). That
1 000 budget balance stemmed from a national budget deficit of BGN
500 19.2 mn and an EU funds surplus of BGN 8.6 mn. The deficit
0
accumulated from the beginning of the year amounted to BGN
731.1 mn, or 1% of Raiffeisen RESEARCH’s GDP forecast for
-500
2011. For the period January August 2011 the improvement of
-1 000 the budget balance was by BGN 805.6 mn (52.4%) compared
-1 500 to the same period of the previous year (as of the end of August
-2 000
2010 the deficit was BGN 1.5 bn).
I II III IV V VI VII VIII
Monthly balance, 2010
Cumulative balance, 2010
Monthly balance, 2011
Cumulative balance, 2011
The execution of the budget continued being considerably better
than the envisaged target for a 2.5% budget deficit to be
Source: Ministry of Finance achieved at the end of the year. In case that in the last months of
2011 no excessive expenditures are made, a value lower than
the planned one could be reported also after the end of the fiscal
Figure 15: Cumulative revenues (BGN mn) year.
18 000
For the first eight months of the year the revenues and grants of
16 000
14 000
the consolidated budget amounted to BGN 16.2 bn, and
12 000
compared to the same period of 2010 they increased by BGN
10 000
940 mn (6.1%). Tax revenues increased on an annual basis by
8 000 BGN 1.3 bn (11.3%). Non-tax revenues decreased by BGN
6 000 67.4 mn (1.8%), and grants stepped down by BGN 341 mn.
4 000
2 000 The largest contributors to the increase of tax revenues were VAT
0
I II III IV V VI VII VIII
and excise revenues which increased on an annual basis
2010 2011 respectively by BGN 457.6 mn (12.6%) and BGN 295.9 mn
(13.8%). Their increase was largely determined by the higher
Source: Ministry of Finance
price of crude oil which its imports to the country are based
Figure 16: Cumulative expenditures (BGN mn) upon. Social and healthcare contributions also increased
18 000
considerably – by BGN 355.2 mn (10.8%).
16 000
14 000
Compared to the previous month revenues and grants increased
12 000
by BGN 45.2 mn (2.2%). Tax revenues increased by BGN 98.5
10 000 mn (5.8%), and grants stepped up by BGN 27.9 mn (27.8%).
8 000 For non-tax revenues, a decrease of BGN 81.2 mn (28%) was
6 000 registered.
4 000
2 000 The consolidated budget expenditures accumulated from the
0
I II III IV V VI VII VIII
beginning of the year amounted to BGN 16.5 bn. On an annual
2010 2011 base they augmented by BGN 134.8 mn (0.8%). By separate
items, the largest increase was registered for social expenditures
Source: Ministry of Finance
and scholarships – by BGN 281.5 mn (3.9%). Maintenance
costs increased by BGN 75 mn (2.9%), the increase for social
and healthcare contributions was BGN 33.4 mn (5.2%), while
that for interest payments amounted to BGN 26.6 mn.
7
Fiscal Sector
(6.2%; it was mainly due to the domestic-debt-related payments).
A decline was registered for capital expenditures – by BGN
225.6 mn (13%), as well as for expenditures on wages and
salaries – by BGN 39 mn (1.5%) and subsidies – by BGN 17.1
mn (1.6%).
The part of Bulgaria’s contribution to the common EU budget
Figure 17: Fiscal reserve (BGN mn) paid as of end-August amounted to BGN 466.3 mn, and on an
annual basis it was by BGN 0.4 mn (0.1%) smaller.
10 000
9 000
8 000
On a monthly basis, expenditures decreased by BGN 4.5 mn
7 000 (0.2%) and amounted to BGN 2.1 bn. There was a significant
6 000 increase of capital expenditure – by BGN 95.9 mn (48.9%).
5 000
4 000
Subsidies also grew – by BGN 20.2 mn (17%). All remaining
3 000 expenditure items had negative changes vis-a-vis July 2011. By
2 000 BGN 86 mn (82.5%) less were interest expenditures (in July there
1 000
were considerably higher interest payments related to both
0
I III V VII IX XI I III V VII IX XI I III V VII domestic and external debt), maintenance costs stepped down
2009 2010 2011
by BGN 19.8 mn (6.3%), wages and salaries declined by BGN
Source: Ministry of Finance 9.7 mn (2.9%), and social and healthcare contributions – by
BGN 4.7 mn (5.3%), while social expenditures and scholarships
remained relatively unchanged.
As of 31 August 2011 the fiscal reserve amounted to BGN 5 bn.
On an annual basis it decreased by BGN 1.2 bn, and
compared to the end of July it augmented by BGN 112 mn. Thus
the fiscal reserve reached a level which was by about BGN 500
mn higher than the minimum set in the Law on the State Budget
and which has to be complied with at the end of the year.
8
Monetary Sector
FX reserves step up by EUR 579 mn in August
The increase of the deposit mass gets back to normal
Figure 18: Contributions to M3 growth (p. p.) In August the broadest monetary aggregate M3 increased by
15%
9.4% on an annual base. The rate was the same as the one
observed during the previous month. Traditionally, the largest
10%
contribution (4.2 p.p.) to this increase came from the deposits
5%
with agreed maturity up to 2 years which increased by 10.2%
0%
on an annual base (11.2% was the growth rate during the
-5% previous month). The second-largest contributor were overnight
-10% deposits (with 2.1 p.p.), which increased by 9% compared to
August 2010 (in July 2011 their annual rate of increase was
2009
Money outside banks
2010
Overnight deposits
2011
6%). The deposits redeemable at notice up to 3 months,
Deposits w/ maturity up to 2 years
Broad money M3
Deposits red. at notice up to 3 months increased by 15.5% (16.6% in July) and contributed by 1.3 p.p.
to the growth rate of M3. A slight deceleration of the increase
Source: BNB, Raiffeisen RESEARCH was also recorded for money outside banks – from 3.9% in July
to 3.3% in August, and their contribution remained the same as
Figure 19: FX coverage of monetary base and
M3 (%) in July: 0.5 p.p..
210% 70% Compared to July 2011 the money supply M3 increased by
200% 60% 1.3%, while in the previous month it was 2.6%. The largest was
190%
50%
the increase of overnight deposits (by 6%), followed by money
180%
40%
outside banks with 1.6%. The deposits redeemable at notice up
170%
30%
to 3 months increased by the modest 0.3%, and the deposits
20%
with agreed maturity up to 2 years even recorded a small
160% 10%
decline amounting to 0.5%.
150% 0%
I III V VII IX XI I III V VII IX XI I III V VII IX XI I III V VII
2008 2009 2010 2011
As of 31 August 2011 the amount of the assets of the Issue
FX reserves/ Monetary base FX reserves/ M3 (rhs) Department of the BNB (the FX reserves) reached EUR 13.1 bn.
Compared to the previous month increased by EUR 578.6 mn,
Source: BNB, Raiffeisen RESEARCH and compared to the same month of the previous year – by EUR
Figure 20: Net foreign assets of banks (BGN 604.4 mn. The monthly increase was basically due to the
mn) increased liabilities to banks – by EUR 235.2 mn, and to the
0
increase of the BNB’s Banking Department deposit by EUR
-2000
221.9 mn. The deposit of the Government also had an increase
– by EUR 42.9 mn. The FX reserve coverage of the monetary
-4000
base reached 179.7% (178.9% at the end of July), while the
-6000
requirement for currency board stability is for a minimum of
-8000
100% coverage.
-10000
-12000 The improvement of banks’ net foreign assets in August
-14000 amounted to BGN 2.9 bn on an annual base, of which BGN 2.8
VIII X XII II IV VI VIII X XII II IV VI VIII X XII II IV VI VIII
bn were due to the increase of foreign assets (BGN 2.6 bn were
deposits abroad) and only BGN 98.2 mn were a decrease of
2008 2009 2010 2011
Source: BNB, Raiffeisen RESEARCH foreign liabilities. The dynamics of the net foreign assets reflects
simultaneously the good liquidity of the banking system and the
weak potential of households and companies in the country to
assume new credit obligations. As a whole, from November
2008 (a period in which the first signals for deterioration of the
economic environment in Bulgaria were observed) to this date
net foreign assets improved by the impressive BGN 8.9 bn. Out
of them BGN 3.3 bn was the increase of foreign assets,
9
Monetary Sector
and BGN 5.6 bn was the decrease of foreign liabilities.
On a monthly basis net foreign assets improved by BGN 184
mn. Foreign assets decreased by BGN 63.7 mn, and the
Figure 21: Loans (% yoy)
decrease of foreign liabilities was BGN 247.7 mn (stemming
80% from the decrease of non-residents’ deposits).
70%
60%
In August the loans to non-financial enterprises increased by
50%
40% BGN 1.87 bn (6.1%) on an annual basis, and the rate of
30% increase accelerated from the 4.8% reported for July. On a
20%
monthly basis the increase was by BGN 92.9 mn (0.3%), and
10%
0% there was a deceleration compared to the rate recorded for the
-10% previous month (0.7% in July compared to June).
I IV VII X I IV VII X I IV VII X I IV VII X I IV VII
2007 2008 2009 2010 2011
The loans to households decreased by BGN 85 mn (0.4%) on an
Non-financial enterprises Households
annual basis (the decline in July was by BGN 95.5 mn, or
Source: BNB, Raiffeisen RESEARCH 0.5%). Only for August they increased by BGN 17 mn (0.1%),
while in the previous month a decrease of BGN 2.2 mn was
Figure 22: Deposits (% yoy)
observed (approximately a 0% change). The consumer loans
60.0% increased by BGN 15.9 mn (BGN 5.6 in July), and the housing
50.0%
loans grew by BGN 8.3 mn (BGN 12.8 mn in July).
40.0%
30.0%
The increase of the bad and restructured loans decelerated
during that month, and their share reached 21.5% of all credit
20.0%
10.0%
0.0%
less overdraft (21.2% in July). Specifically, for non-financial
-10.0% enterprises this share reached 23% (22.7% in July), and for
-20.0% households – 19.4% (19.2% in July).
I IV VII X I IV VII X I IV VII X I IV VII X I IV VII
2007 2008
Non-financial enterprises
2009
Households
2010 2011
In August 2011 the deposits of non-financial enterprises
increased by BGN 84.7 mn on a monthly basis (BGN 487.4 mn
Source: BNB, Raiffeisen RESEARCH was the increase in July). Households’ deposits increased
compared to July 2011 by BGN 181.8 mn (BGN 444.5 mn in
July). An inference can be made that the realized figures for both
non-financial enterprises and households are a kind of return to
normality since the values reported for July were atypically high
compared to the data for the previous months.
10
External Sector
A large C/A surplus in July due to tourism revenues and strong export of
goods
A net financial outflow once again: EUR 685 mn this time
Figure 23: C/A by components (EUR mn)
800.0
600.0
400.0
The current account surplus reached EUR 886 mn for the period
200.0 January-July, or 2.3% of 2011 GDP forecast figure. Only in July
-200.0
0.0
the current account posted a surplus of EUR 641.7 mn. The
-400.0 monthly balance is high, but that was expected in view of the
-600.0
-800.0 tourism season, which is typically strong in this month of the
-1000.0
-1200.0
year. For comparison, in July 2010 the positive C/A balance
I III V VII IX XI I III V VII IX XI I III V VII IX XI I III V VII was EUR 532.6 mn.
2008 2009 2010 2011
Regarding the revenue from tourism, there was no significant
change on an annual basis - EUR 583.3 mn in July 2011 vs.
Trade balance Services, net Income, net
Current transfers, net Current account
Source: BNB
EUR 567.2 in July 2010 (2.8% growth). Although there is an
increase of the number of foreigners travelling to Bulgaria, the
Figure 24: Revenues from foreigners travelling
to Bulgaria (EUR mn) data still does not confirm the expectations of an extremely rapid
600 development of the sector during this season.
500
Meanwhile, the July data on Bulgaria's trade balance surprised
400
positively as there was accounted a surplus of EUR 50.7 mn. The
cumulative trade deficit since the beginning of the year
300
200
amounted to EUR 590.5 mn, marking an improvement of 63%
100
compared to the negative balance of EUR 1.6 bn for the same
0 period last year.
2005 2006 2007 2008 2009 2010 2011
June July
The favourable trade developments in July were due to the
Source: BNB
dynamic growth of exports of goods - by 20% compared to same
Figure 25: Trade balance (EUR mn)
200
month of 2010, while our expectations were for a more
significant slowdown of this indicator's dynamics in H2 2011
0
due to reduction of price increases on the international markets
-200
and slowdown in external demand's growth. It should be borne
-400 in mind that trade data are subject to revisions and their amount
-600
could be reduced.
-800
On the other hand, import of goods rose more slowly than
-1000 envisaged- by 11.9% yoy, decelerating from the 13.7% growth
recorded a month earlier. Import of goods continues to
I VII I VII I VII I VII I VII I VII I VII I VII I VII I VII I VII I VII I VII
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20102011
significantly fall behind the period before the recession, which is
Source: BNB
associated with the similar development of consumption and
Figure 26: Export of goods (EUR bn) investment in the country.
2.0
1.8
1.6 In July the income account was negative (EUR -153.6 mn),
1.4
1.2
worsening by a minimum amount on an annual basis (EUR -
1.0 146.2 mn in July 2010). Net current transfers for the month
0.8
0.6
totalled to EUR 120.8 mn, or by EUR 28.2 mn less than a year
0.4 earlier. This was due to a decline by EUR 41.1 mn of the
0.2
0.0 incoming transfers from EU to the government sector.
I III V VII IX XI I III V VII IX XI I III V VII IX XI I III V VII
2008 2009 2010 2011
Source: BNB
11
External Sector
Figure 27: Financial account (EUR mn) In July, a net inflow of EUR 40.5 mn was recorded on the capital
account. On the financial account, however, there was a net
2000
outflow of a significant amount - EUR 685 mn, registered under
1500
investment other than direct and portfolio.
1000
500
With the onset of recession on the account of other investments
began the process of repayment of foreign liabilities, primarily
0
from the banking sector. In 2009, the net outflow was EUR 0.7
-500
bn, in 2010 - nearly EUR 1.1 bn3. This year the reduction in
-1000 foreign liabilities continued and only in July a net financial
I III V VII IX XI I III V VII IX XI I III V VII IX XI I III V VII
outflow of other investments amounting to EUR 742.3 mn was
2008 2009 2010 2011
Direct investment, net Portfolio investment, net
realized, which is the largest monthly deficit in this article from
Other investment, net Financial account the end of 2008. Thus, for the first seven months of 2011 the
outflow of other investment accrued to EUR 1.6 bn, or 1.2 times
Source: BNB more compared to the same period of 2010.
Figure 28: Net foreign direct investment (EUR
mn)
This dynamics was again a result of the actions of the banking
sector due to the availability of financial resources. In July
800 Bulgarian banks invested abroad currency and deposits worth
600 EUR 545 mn and repaid foreign loans at the value of EUR 53.8
400
mn. In addition, currency and deposits of non-residents
amounting to EUR 71.2 mn were withdrawn from Bulgarian
200
banks.
0
-200
In terms of direct investment, the net inflow remained small - EUR
61.3 mn in July 2011 vs. EUR 187.1 mn in July 20104. For the
-400
I III V VII IX XI I III V VII IX XI I III V VII IX XI I III V VII whole period from the beginning of the year, net foreign direct
2008 2009 2010 2011
investment are positive in the amount of EUR 117 mn, but falling
behind by 82% on an annual basis.
Source: BNB
In the first quarter of 2011 the repayment of intercompany loans
Figure 29: Foreign direct investment in
Bulgaria by sectors (EUR mn) from the manufacturing industry had a large negative
contribution to the amount of FDI in Bulgaria. During the period
April to June this sector, which is developing favourably driven
3000
2500
2000 by strong export, attracted FDI totalling to EUR 105 mn. In the
1500 real estate sector FDI at the amount of EUR 73 mn were made,
1000
while in financial intermediation and their size was negative
500
0 (EUR -41 mn).
-500
I II III IV I II III IV I II III IV I II III IV I II With regard to the geographical structure of FDI in Bulgaria, the
2007 2008 2009 2010 2011 largest positive flow in the second quarter was reported from the
Construction
Trade
Real estate
Other
Finance
Total
Manufacturing
Netherlands and Luxembourg, and negative - from Austria,
Hungary and the UK.
Source: BNB
3
The balance of other investment in 2010 was revised from EUR -774 mn to
EUR -1074 mn
4
The amount of net FDI for 2010 was revised from EUR 1459 mn to EUR 1582
mn, and for H1 2010 - from EUR 23.6 mn to EUR 55.7 mn
12
External Sector
Figure 30: Gross external debt (EUR bn, % of In July, the balance of portfolio investment was positive, unlike
GDP)
the previous two months. Its size remained small (EUR 13.1 mn)
40 140 and without notable contribution to the dynamics of the financial
35
130 account.
30
120
25
20 110 In July, the positive balance of the current and capital account
15
100 offset the negative balance of the financial account. Taking into
10
5
90 account net errors and omissions, the overall balance of
0 80 payments reached EUR 40.4 mn. BNB's FX reserves increased
bn EUR
I IV VII X I IV VII Х I IV VII Х I IV VII
% by the same amount.
2008 2009 2010 2011
bn EUR % of GDP After two months with positive change in July gross external debt
(GXD) declined again - by EUR 151 mn to EUR 36.2 bn, mainly
Source: BNB, NSI, Raiffeisen RESEARCH
due to the repayment of foreign liabilities by the banking sector.
Figure 31: BNB's FX reserves vs. short-term Since the beginning of the year the reduction in GXD is nearly
GXD (EUR bn) EUR 870 mn.
16
In July BNB FX reserves rose - from EUR 12.3 bn in June to EUR
14
12.5 bn in July. In addition, the short-term GXD decreased by
12
10
EUR 5 mn. As a result, the coverage of short-term foreign
8
liabilities by BNB's FX reserves reached 115.1%, which is the
6 highest value since the summer of 2008.
4
2
0
I IV VII X I IV VII X I IV VII Х I IV VII Х I IV VII
2007 2008 2009 2010 2011
FX reserves Short-term external debt
Source: BNB
13
Key Figures
2007 2008 2009 2010 2011e 2012f
Real GDP (% yoy) 6.4 6.2 -5.5 0.2 2.0 2.0
Nominal GDP (EUR bn) 30.8 35.4 34.9 36.0 38.2 39.8
Nominal GDP per capita (EUR) 4028 4658 4618 4801 5220 5477
Nominal GDP per capita (EUR at PPP) 10000 10900 10400 10600 11360 11861
Household consumption (real, % yoy) 8.3 3.0 -7.6 -0.6 0.6 1.3
Government consumption (real, % yoy) -1.6 -1.5 -4.9 -5.0 2.3 1.2
Gross fixed capital formation (real, % yoy) 11.8 23.4 -17.6 -16.5 -1.0 3.0
Exports of goods and services (real, % yoy) 6.1 3.0 -11.2 16.2 9.9 2.4
Imports of goods and services (real, % yoy) 9.6 4.2 -21.0 4.5 6.9 1.9
Industrial output (% yoy) 9.6 0.7 -18.3 2.0 5.0 1.5
Producer prices (avg, % yoy) 7.7 11.1 -6.2 8.5 12.0 7.9
Consumer prices (avg, % yoy) 8.4 12.3 2.8 2.4 4.2 3.1
Consumer prices (eop, % yoy) 12.5 7.8 0.6 4.5 3.6 2.6
Average monthly gross wages (BGN) 431 545 609 647 692 723
Average gross wages ( % yoy) 19.5 26.5 11.8 6.3 6.9 4.5
Average monthly gross wages (EUR) 220 279 311 331 354 370
Average gross industrial wages ( % yoy) 18.4 24.3 9.7 10.5 8.1 4.6
Employed persons (LFS, thd, avg) 3253 3361 3254 3053 2949 2938
Employment (avg, % yoy) 4.6 3.3 -3.2 -6.2 -3.4 -0.4
Unemployment rate (avg, %) 6.9 6.3 6.8 10.2 11.4 11.6
General budget balance (% of GDP) 3.3 2.9 -0.8 -3.9 -2.6 -2.2
Public debt (% of GDP) 17.1 13.6 14.3 14.9 16.2 20.3
Export of goods (EUR mn) 13512 15204 11699 15561 18986 18258
Import of goods (EUR mn) 20757 23802 15873 18325 20789 20107
Trade balance (EUR mn) -7245 -8598 -4174 -2764 -1802 -1849
Current account balance (EUR mn) -7755 -8182 -3116 -476 882 1057
Current account balance (% of GDP) -25.2 -23.1 -8.9 -1.3 2.3 2.7
Net foreign direct investment (EUR mn) 8341 6206 2505 1585 418 507
Net foreign direct investment (% of GDP) 28.7 17.5 7.2 4.4 1.1 1.3
Official FX reserves (EUR bn) 11.9 12.7 12.9 13.0 12.8 15.4
Official FX reserves (% of GDP) 38.8 35.9 37.0 36.1 33.6 38.7
Gross foreign debt (EUR bn) 29.0 37.2 37.8 37.0 35.7 36.5
Gross foreign debt (% of GDP) 94.2 105.1 108.3 102.8 93.5 91.5
EUR/BGN (eop) 1.96 1.96 1.96 1.96 1.96 1.96
EUR/BGN (avg) 1.96 1.96 1.96 1.96 1.96 1.96
USD/BGN (eop) 1.34 1.41 1.37 1.46 1.35 1.56
USD/BGN (avg) 1.43 1.33 1.40 1.47 1.40 1.38
EUR/USD (eop) 1.46 1.39 1.43 1.34 1.45 1.25
EUR/USD (avg) 1.37 1.47 1.39 1.33 1.40 1.42
Key interest rate (% avg) 3.9 5.2 2.0 0.2 0.2 0.5
3 month Sofibid (% avg) 4.4 5.9 4.1 2.3 2.0 2.4
10 year T-bond yield (% avg) 4.5 5.4 7.2 5.9 5.4 5.1
Ratings, long-term, foreign currency Current Outlook Comment
S&P BBB stable N/A
Moody's Baa2 stable Rating upgraded in July
Fitch BBB- positive Outlook upgraded in May
Source: Raiffeisen RESEARCH
14
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