S&P sees strong growth prospects for Bulgaria in mid-term.

By bne IntelliNews October 1, 2012
Credit rating agency Standard & Poors expects Bulgarias (BBB/Stable/A-2) GDP to grow by 0.5% in 2012 with subdued domestic demand and external pressures from the EU leading to this low growth forecast. Nevertheless, the agency is optimistic on the countrys economic potential and sees a 3% economic expansion in 2013 on recovering external demand. Domestic demand has strengthened in first-half 2012 amid wage growth and despite a weak labour market, according to the agency. The country remains competitive due to its low labour costs, despite the depreciation of several currencies in the region (Serbia, Romania). FDI will follow a path of gradual recovery but will not reach pre-crisis levels due to stalled credit inflows. On the public finance side, S&P expects annual deficit to be below the governments target of 1.6% of GDP in 2012 and a continued improvement next year. Public debt is forecast at around 17% at year-end and seen to decline after that. Expected rise in discretionary spending ahead of the 2013 general elections will likely boost imports, although the current account deficit should not rise to pre-recession levels. The agency sees limited political risk in the country, despite weakened support for the minority government. The currency board arrangement is broadly supported and is not at risk. Commitment to macroeconomic stability and the peg raise the sovereign's creditworthiness.

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