BULGARIA ECONOMIC AND MARKET ANALYSES, February, 2012

Transcription

1 1 BULGARIA ECONOMIC AND MARKET ANALYSES, February, 212 Bulgaria: Key Indicators e GDP growth (%) y/y.2% 1.7% 1.4% Inflation eoy (%) 4.5% 2.8% 2.8% Unemployment rate (%) 9.2% 11.2% 11.5% Current Account/GDP (%) -1.% 1.9% 1.% Trade balance EUR mn FDI EUR mn Government Debt and governement guarenteed debt /GDP (%) 16.7% 16.8% 18.7% Budget Surplus/ GDP(%) -4.% year bond yield (avarage) 4.72% 4.43% 4.1% Source: BNB, estimations Ministry of Finance* and UBB** The quoted data set in this report are the last available data, published in the official source s web sites as of 29 of 212 CHIEF ECONOMIST DEPARTMENT 5 SVETA SOFIA STR., SOFIA 14 In January 212 the current account was negative and amounted to EUR 112 mn or.3% of GDP The gross external debt amounted to EUR 35,151.7 mn or 85.4% of GDP Foreign reserves registered EUR bn in February 212 Bulgaria s GDP growth revised grew up to 1.6% y/y in Q4, 1.7% in 211 In February 212 the total business climate indicator marked a decrease by 2.4 percentage points Bulgaria s consumer inflation slows down to 2% y/y in February 212 In January 212 total Producer Price Index grew by 4.8% y/y Bulgaria s industrial production falls 3.1% y/y January 212. Retail sales in Bulgaria declined by 2.6% y/y in January 212 In Q4 211 hourly labour cost rose by 9.7% y/y Bulgaria's unemployment rate reached 11.5% at end-february 212 Bulgaria s general budget deficit narrows by 37.6% y/y in Jan 212 Fiscal reserve declined by 19.4% m/m in January 212 on one-off payments Public debt declined to EUR 5.89bn at end-january 212 In February 212, the broad money (monetary aggregate M3) was BGN bn or 71.3% of GDP In February 212 the domestic credit amounted to BGN bn and increased by 6.9 y/y In February 212 Bulgarian share idices trends fluctuated As of 29 February 212, the profit of the banking sector amounted to BGN 118 mn. Chief economist : Petya Tsekova Chief analyst Zafira Bojuklieva

2 2 BULGARIA: ECONOMIC AND MARKET ANALYSES, February / 9 Balance of payments Source: BNB 5 / 9 9 / 9 1 /1 5 /1 9 /1 1 /1 1 5 /1 1 9 /1 1 1 /1 2 CA Net FDI EXTERNAL SECTOR 1. Balance of payments In January 212 the current account was negative and amounted to EUR 112 mn or.3% of GDP In January 212 the Current and Capital account was negative, amounting to EUR 112 mn or.3% of GDP, against a deficit of EUR 69.1 mn (.2% of GDP) for January 211. In January 212 the current account was negative and amounted to EUR 112 mn (.3% of GDP), against a deficit of EUR 67.2 mn (.2% of GDP) for January 211. The main factor for the increase in the current account deficit was the higher trade deficit (by EUR mn). The trade balance was negative amounting to EUR mn (.4% of GDP) in January 212, against a deficit of EUR 18.7 mn in January 211. Exports (FOB) amounted to EUR mn in January 212, against EUR mn in January 211, decreasing by 1.2% y/y, against an increase of 74.6% y/y for January 211. Imports (FOB) amounted to EUR mn in January 212, against EUR mn in January 211. They decreased by.3% y/y, against an increase of 45.8% y/y in January 211. The balance on the Services item was positive in January 212, amounting to EUR 5.6 mn (.1% of GDP), against a positive balance of EUR 24.4 mn (.1% of GDP) for January 211. The Income (net) was negative in January 212 amounting to EUR 52 mn (.1% of GDP), against a negative item of EUR mn (.3% of GDP) for January 211. The Net Current transfers amounted to EUR 65.8 mn (.2% of GDP) in January 212 against EUR 43.4 mn (.1% of GDP) in January 211. The Financial account balance was negative in January 212 amounting to EUR 573 mn (1.4% of GDP), compared to a negative balance of EUR mn (1.1% of GDP) in January 211. The Foreign direct investment abroad amounted to EUR 6.8 mn in January 212 against EUR 13.1 mn in January 211. The Foreign direct investment in Bulgaria was EUR 44.2 million (.1% of GDP) against EUR mn (.5% of GDP) in January 211. Portfolio investment assets decreased by EUR mn in January 212, against an increase of EUR 15 mn in January 211. Portfolio investment liabilities decreased by EUR 71.6 mn in January 212. In January 211 they decreased by EUR mn. Other investment assets increased by EUR 56.2 mn in January 212, compared to an increase of EUR 356 mn in January 211. Other investment liabilities decreased by EUR mn in January 212 against a decrease of EUR mn for January 211. The item Net errors and omissions was positive in January 212, amounting to EUR mn. The item was negative and amounted to EUR mn in January 211. The Overall balance was negative amounting to EUR mn in January 212, against a negative overall balance of EUR mn in January 211. In January 212 the BNB reserve assets decreased by EUR mn against a reported decrease of EUR mn in the same period of 211. Gross External Debt, EUR bn Source:BNB /1 4/1 7/1 1/1 1/11 4/11 7/11 1/11 1/12 Public Private 2.. External debt The gross external debt amounted to EUR 35,151.7 mn or 85.4% of GDP in January 212 The gross external debt amounted to EUR 35,151.7 mn (85.4% of GDP) in January 212 decreasing by EUR233 mn from end-211 (EUR 35,384.7 mn, 91.9% of GDP). On a year-on-year basis it decreased by EUR 1,849.5 mn (from EUR 37,1.2 mn). The long-term liabilities amounted to EUR 25,227.1 mn (71.8% of the total debt, 61.3% of GDP) at end-january 212, and short-term liabilities equalled EUR 9,924.6 mn (28.2% of total debt, 24.1% of GDP). General Government s gross external debt totalled EUR 2,722.1 mn (6.6% of GDP) in January 212. It declined by EUR 6.9 mn (2.2%) from end-211 (EUR 2,783 mn, 7.2% of GDP), and by EUR 48.5 mn (1.8%) year-on year (from EUR 2,77.6 mn). Banks external debt totalled EUR 5,555.6 mn (13.5% of GDP). It decreased by EUR 82 mn (1.5%) from end-211, and by EUR 1,13.9 mn (16.6%) year-on-year (from EUR 6,659.5 mn). Other Sectors debt equalled EUR12,96.4 mn (29.4% of GDP). It decreased by EUR 8.7 mn from end- 211, and by EUR mn (2.9%) year-on-year (from EUR 12,463.4 mn). The stock of Intercompany Lending4 amounted to EUR 14,777.5 mn (35.9% of GDP) at end-january 212, dropping by EUR 9.3 mn (.1%) from end-211 (EUR 14,786.8 mn, 38.4% of GDP). Compared to end-january 211 (EUR 15,17.7 mn) the sector s debt decreased by EUR 33.2 mn (2.2%). Gross external debt service totalled EUR mn (.9% of GDP) in January 212 against EUR mn (1.9% of GDP) in the same period of 211. The loans and deposits received from non-residents equalled EUR 97.9 mn (.2% of GDP) in January 212 against EUR mn (1.5% of GDP) in the same period of 211. They were distributed as follows: General Government received EUR 12.6 mn (12.9%), Banks received EUR 28 mn (28.6%), Other Sectors received EUR 37.6 mn (38.4%) and the disbursed Intercompany Lending was EUR 19.7 mn (2.1%). The net external debt totalled EUR 15,398.8 mn at end-january 212. It declined by EUR mn from end-211 (EUR 15,756.3 mn). As a percentage of GDP it equalled 37.4%, dropping by 3.5 p.p. from end-211 (4.9%). The decline was due to the decrease in gross external debt (by EUR 233), as well as to the increase in gross external assets (by EUR mn). The net external debt stood at EUR 18,555.3 mn at end-january 211.

3 3 BULGARIA: ECONOMIC AND MARKET ANALYSES, February Foreign Reserves (EUR mn) Source: BNB /1 6/1 11/1 4/11 9/11 2/12 3. Foreign reserves Foreign reserves registered EUR bn in February 212 Foreign reserves decreased by 1.5% m/m (EUR 192.2mn) to EUR 12.79bn as of end-february and the contraction moderated from 2.8% m/m at the end of January 212. The deposit of the government dropped by 4.6% (EUR 487.7mn) indicating further worsening of government finances since the beginning of the year though at a lower rate than in January. It accounted for 13% of the total foreign reserves as compared to 18.4% a year earlier and 13.4% at the end of January 212. The money in circulation, the deposits of the commercial banks and the holdings of other depositors went down by.6% m/m, 2.8% m/m and 4.4% m/m, respectively, or total of EUR 142mn with banks accounting for more than 6% of the said amount. In annual terms, the reserves increased by 3.7% slowing from 6.2% y/y in December. Since the beginning of the year, foreign reserves have fallen by 4.2%. The ratio of foreign reserves to short-term debt improved further to 132.7% at the end of 211 as compared to revised 129.2% a month earlier and 114.5% at the end of 21. II. REAL SECTOR % GDP Growth, to the same quarter previous year Source:NSI Q4/9 Q1/1 Q2/1 Q3/1 Q4/1 Q1/11 Q2/11 Q3/11 Q4/11 1. GDP Growth Bulgaria s GDP growth revised grew up to 1.6% y/y in Q4, 1.7% in 211 According preliminary NSI data Bulgaria s GDP (in seasonally and working-day adjusted terms) expanded by 1.6% y/y in Q The growth flattened at its previous quarter level but is lower than the 3.2% y/y and 2.2% y/y increases in Q1 and Q2, respectively. In Q4, the rate of expansion was revised marginally up from 1.5% y/y in the flash estimate released last month. In quarterly terms the indicator grew by.3%, speeding from.2% in Q3. Supply-side breakdown indicates negative contribution on the part of construction, trade, and arts and entertainment. The agriculture turned to growth while acceleration in the rate of increase was marked by the industry, information and communication, real estate activities, professional, scientific and technical activities, as well as the public administration. Adjustments marked insignificant increase of.1% y/y to indicate better indirect tax collection than a year earlier. On the demand side, exports growth rebound to 12.6% y/y in Q4 from revised 5.4% y/y despite the discouraging signs from the main EU partners. Imports growth decelerated to 4.5% y/y in Q4, down from 9% y/y in Q3, 8.1% in Q2 and 13.6% in Q1. Final consumption increased by.5% y/y in Q4 on the back of personal consumption while collective consumption spending declined by 1.2% y/y. Investment in fixed capital declined by 9.7% y/y in Q4 and we note that the rate of contraction has been speeding in each quarter since the beginning of the year to reflect lack of enough profitable projects. In 211, GDP rose by 1.7%, below the government forecast of 2.8% and the forecasts of most of the international institutions, but up from.2% in 21 and 1.6% in the flash estimate released last month. Business climate for the period 2/1-2/12 Source: NSI /1 6/1 1/1 2/11 6/11 1/11 2/12 2. Business climate indicator In February 212 the total business climate indicator marked a decrease by 2.4 percentage points Industry. Only the composite indicator business climate in industry preserved its level from the previous months. In February the production activity and the orders decrease, but the stocks of finished goods rose. However over the next months managers expected some recovery of the activity. The main factor limiting the activity of the enterprises remains the uncertain economic environment, even though in the last month its negative impact is decreased, it remains above its long-term average for the last 1 years. Also the unfavorable influence of the second strongest factor insufficient domestic demand is strengthened. Most of the managers do not expect a change in the level of the selling prices over the next 3 months. Construction. In February 212 the composite indicator business climate in construction decreased by 2.3 percentage points in comparison with January which was due to shifting of the opinions about the present business situations of the enterprises from good to normal for the season. According to the construction entrepreneurs assessments the present construction activity is decreased as compared to the previous month, but the forecasts about the next 3 months are more favorable (the balance indicator goes up by 8.8 percentage points). The uncertain economic environment and the financial problems continue to be the main factors limiting the activity in the construction branch followed by the insufficient demand. In February 212 stand out the fourth factor influencing negatively on the activity of enterprises, namely "weather conditions" pointed out by 43.9% of the heads. The expectations of the managers regarding the selling prices in construction are for a certain decrease over the next 3 months. Retail trade. The composite indicator business climate in retail trade decreases by 1.9 percentage points in comparison with the previous month which is due to the worsening of the managers assessments about the present business situation of the enterprises. At the same time the inquiry registers a reduction in volume of sales over the last 3 months and increased level of stocks. However the retailers expressed optimism in their prognosis about development of business situation as their expectations are for some recovery about the sales and orders placed with suppliers over the 3 months. The main problems for the development of the business in the sector continue to be the uncertain economic

4 BULGARIA: ECONOMIC AND MARKET ANALYSES, December BULGARIA: ECONOMIC AND MARKET ANALYSES, February environment, the insufficient demand and the competition in the branch. By the last inquiry data an increase of the retail trade prices over the next 3 months is not expected. Service sector. In February 212 the composite indicator "business climate in service sector" decreases by 7.6 percentage points as compared to the previous month. The manager s assessments and expectations about business situation of the enterprises are worsened. The survey records decreased demand for services over the last 3 months and relatively moderate expectations over the next 3 months. The most important factor limiting the activity in the sector continues to be the uncertain economic environment which negative influence increases and over the last month it has reached its maximum value (74.9%) since the beginning of the service survey. At the same time in February the negative influence of the factors financial problems and insufficient demand is strengthened. With regard to the selling prices in the service sector the prevailing expectations are for preservation of their level over the next 3 months. 8% 6% 4% 2% % -2% 1/9 5/9 Inflation y/y Source: NSI 9/9 1/1 5/1 9/1 1/11 5/11 9/11 1/12 CPI, y/y 3. Inflation Bulgaria s consumer inflation slows down to 2% y/y in February 212 Bulgaria s consumer price inflation decelerated further to 2% y/y in February 212 from 2.3% y/y in January, according to data of NSI. office. In monthly terms, consumer prices rose by.9% during the month. The prices of food, housing and utilities services, healthcare services, transport, and hotels and restaurants had positive contribution to the overall index growth during the month. The annual average inflation for the 12-month period ending in February 212 reached 3.8% y/y, down from average of 4.2% in 211. Consumer prices have increased by 1.1% since the beginning of the year. The EU harmonized inflation index (HICP), used as a benchmark for the euro adoption, was also at 2% y/y, slightly up from preliminary estimate for 1.9% y/y in January. In monthly terms, HICP rose by.6%. The government expects HCPI inflation to slow down to 2.8% at the end of 212 and to an average of 3.2% in 212. The rising world oil prices will push up consumer prices in the country in the following months helped by administrative upward corrections of energy prices. On the downside, weak consumption and the still stiff labor market will compensate the above effect. Producer Price Index y/y Source:NSI 15% 1% 5% % -5% -1% 2/9 6/9 1/9 2/1 6/1 1/1 2/11 6/11 1/11 2/12 PPI, y/y Industrial Turnover Index % Source: NSI /9 4/9 7/9 1/9 1/1 4/1 7/1 1/1 1/11 4/11 7/11 1/11 1/12 4. Producer price index In January 212 total Producer Price Index grew by 4.8% y/y Producer Price Index on Domestic Market in January 212 grew by 1.7% compared to the previous month. The domestic prices rose in the mining and quarrying industry by 2.6%, in the manufacturing by 1.8% and in the electricity, gas, steam and air conditioning supply by 1.3%. In the manufacturing, the more significant prices increases compared to the previous month were seen in the manufacture of basic metals by 6.2%, in the manufacture of chemical and chemical products by 3.1% and in the manufacture of tobacco products by 1.4%. Producer Price Index on Domestic Market in January 212 grew by 5.3% compared to the same month of 211. The domestic prices increased in the manufacturing by 6.3% and in the electricity, gas, steam and air conditioning supply by 5.1%, while in the mining and quarrying industry the prices went down by 3.4%. In the manufacturing compared to the same month of 211, the price increase was registered in the manufacture of chemical and chemical products by 16.3%, in the repair and installation of machinery and equipment by 8.%, in the the manufacture of tobacco products by 7.1% and in the manufacture of food products by 7.%. The prices reductions were seen in the manufacture of basic metals by 3.2% and in the manufacture of other transport equipment by.9%. Total Producer Price Index in Industry in January 212 increased by 2.4% compared to the previous month. The higher prices were registered in the mining and quarrying industry by 2.5%, in the manufacturing by 2.6% and in the electricity, gas, steam and air conditioning supply by 1.5%. In the manufacturing, more significant prices increases were seen in the manufacture of basic metals by 7.2%, in the manufacture of chemical and chemical products by 3.1%, and in the manufacture of machinery and equipment by 2.1%. Total Producer Price Index in January 212 grew by 4.8% comparing to the same month of 211. In the manufacturing, the prices rose by 5.% as compared to January 211. More significant prices increases were seen in the repair and installation of machinery and equipment by 7.3%, in the manufacture of food products and in the the manufacture of tobacco products by 5.6%, while the producer prices went down in the manufacture of basic metals by 1.9%. 5. Industrial production index Bulgaria s industrial production falls 3.1% y/y January 212 Bulgaria s industrial production index declined by real 3.1% y/y in January 212. The contraction sustained for a second month in a row steepening from revised 1.2% y/y in December 211. The manufacturing continued declining but at a lower rate of 3% y/y compared to 5.1% y/y in December. A number of branches like textiles, apparel, wood material, chemical and metal products, electrical appliances and furniture production showed deteriorating trends in January. These were, however offset partially by better results of the metallurgy, manufacturing of computer, electronic and optical products as well as production of vehicles. The extraction industry and the utilities sector turned to declines of.9% y/y and 4% y/y, respectively, as compared to growths of 19.7% y/y and 4.4% y/y a month earlier. The number of industry branches, which posted annual growth in January, was 9 out of a total of 27, as compared to 1 in the previous month. In seasonally-adjusted terms, the industrial production fell by.6% during the month. The working-day-adjusted data showed an annual decrease of 3.6% in Decem-

5 BULGARIA: ECONOMIC AND MARKET ANALYSES, December BULGARIA: ECONOMIC AND MARKET ANALYSES, February ber. The industrial turnover index increased by nominal 3.4% y/y as domestic turnover went up by 1.4% y/y and exports added 6.8% y/y recovering from the one-off contraction in December. In view of the continuing debt problems in the EU as well as the already started economic downturn, the prospects for the industrial business are not bright and exports may again turn to negative territory in the modterm. Bulgaria s construction output increased by 1.2% y/y in January 212. The indicator left the negative territory for the first time since November 21 on better results of civil engineering works, which rose by 9.8% y/y during the month. At the same time, the volume of buildings construction dropped by 4.7% y/y in January as compared to a revised 4.6% y/y decline in December. In seasonally adjusted terms, total construction output was lower by 1.8% m/m while according to working-days-adjusted data, the indicator rose by.2% y/y. Retail Sales, % y/y 4% % -4% -8% -12% -16% 1/9 4/9 7/9 1/9 1/1 4/1 7/1 1/1 1/11 4/11 Source: NSI 7/11 1/11 1/12 6. Retail and wholesale trade Retail sales in Bulgaria declined by 2.6% y/y in January 212 The volume of retail sales fell by 2.6% y/y in January and the contraction steepened slightly from revised 2.5% y/y a month earlier. Retail sales have been declining for eight months in a roll but the decrease is still lower than over 5% y/y recorded in October and November 211. The indicator has been falling in annual terms in each month since February 29 until March 211 when it turned to growth. The positive trend sustained for three consecutive months. In monthly seasonally-adjusted terms, the index went down by.3% in January following one-off increase of.9% m/m in December. In all the 27 EU member states, retail sales growth sped to.7% y/y speeding from.4% y/y in December on nonfood products after declining in the previous months. 13% Unemployment Rate Source: NEA 7. Labor cost In Q4 211 hourly labor cost rose by 9.7% y/y Preliminary data of NSI for the Q4 211 indicated that the total hourly labor cost rose by 9.7% y/y. The total hourly labor cost grew by 6.6% in industry, by 17.4% in services and by 9.6% in construction. The breakdown by economic activities showed that the highest annual growths in total labor costs were recorded in Information and communication %, Professional, scientific and technical activities % and Wholesale and retail trade; repair of motor vehicles and motorcycles %, while the lowest annual growths were registered in Education and Water supply, sewerage, waste management and remediation activities respectively 1.% and 1.7%. Decrease by 1.1% in total labor costs was observed in Real estate activities, Other service activities by 5.1% and Human health and social work activities by 1.1%. In the structure of the total labor costs, the wages and salaries costs per hour worked grew by 9.7% in comparison with a year earlier, while the other (non-wage) costs rose by 1.5%. Among the economic activities in the Q4 f 211 compared to the Q4 of 21 the growth rate of wages and salaries component ranged from (-1.7%) in Real estate activities to 35.7% in Information and communication. 11% 9% 7% 5% J a n F e b M a r A p r M a y J u n J ul A u g S e p O c t N o v D e c Unemployment Bulgaria's unemployment rate reached 11.5% at end-february 212 The unemployment rate, measured in terms of registrations with the state labor agency, reached 11.5% at the end of February 212, up by.4pps as compared to the end of January 212. In February, the number of the unemployed rose by 2.8% m/m and by 3.8% in annual terms, reaching 376,171 registered jobless. The newly-registered unemployed during the month were 9.5% of the total and almost half of them came from the private sector. The manufacturing accounted for the largest share of the new registrations (above 16% of the total), followed by the trade (15.7%), and the state administration (8.5%). II. FISCAL SECTOR 1. Budget balance Bulgaria s general budget deficit narrows by 37.6% y/y in January 212 The general budget posted a deficit of BGN 297.8mn (EUR 152.3mn) in January 212, down by 37.6% y/y, according the Ministry of finance preliminary data of. The gap accounted for.36% of the full-year GDP projection as compared to.63% of GDP a year earlier. Total budget revenues increased by nominal 13.4% y/y and 1.8% y/y in CPI-deflated terms. The respective increases in tax revenues were very close to the total. VAT revenues, up by nominal 25.1% y/y to nearly 5% of the total revenues, had the largest contribution for the revenues expansion. Total expenditures rose by 2.1% y/y in January. The general budget deficit fell by 43.2% y/y to BGN 1.58bn (EUR 89mn) in 211 to 2.1% of the full-year GDP flash estimate, running below the target of 2.5% of GDP set in the budget law. The government will target a budget deficit of 1.35% of the projected full-year GDP in 212.

6 BULGARIA: ECONOMIC AND MARKET ANALYSES December BULGARIA: ECONOMIC AND MARKET ANALYSES, February /9 Fiscal Reserve (BGN mn) Source: MF 5/1 1/1 3/11 8/11 1/ Fiscal reserve Fiscal reserve declined by 19.4% m/m in January 212 on one-off payments The fiscal reserve fell by 19.4% m/m or BGN 971mn to BGN 4.3bn (EUR 2.1bn) at the end of January, according to Ministry of finance preliminary data. The ministry explained the steep decrease with one-off payments on both domestic and external debt as well as financing of agricultural producers, which will be refunded by EU funds later in the year. In annual terms, the reserve fell by 25.6%, accelerating from 16.9% y/y at the end of 211. The fiscal reserve decreased by 16.9% or BGN 1.1bn last year. The fiscal reserve threshold is set at BGN 4.5bn in 212 budget law, unchanged from 211 and 21 levels /9 Government Debt: Domestic and Foreign, EUR mn 5/9 9/9 1/1 5/1 9/1 1/11 5/11 Source: MF 9/11 1/12 3. Public debt Public debt declined to EUR 5.89bn at end-january 212 Bulgaria s general government debt, excluding state guarantees, decreased by.9% m/m but rose in annual terms by 12% to EUR 5.89bn at the end of January 212. The total public debt accounted for 14.3% of the full-year GDP projection. The debt s contraction was due to repayments mainly. The domestic government debt thus fell by 1.9% in monthly terms to EUR 2.41bn at end-january. Its share in the total debt was 4.9%, down from 41.3% at end-211 but up from 36.4% at end-january 21. External government debt edged down.2% m/m to EUR 3.48bn. An additional 1.5% of GDP is booked as state guarantees. As per 212 budget projections the government debt will reach 18.7% of GDP at the end of 212. The Ministry of finance intends to borrow a gross amount of BGN 1.2bn from the domestic market and plans net external financing of EUR 1.2bn. Similar to 211 budget bill, the bill for 212 includes an option for EUR 1bn bond placement on the international market Money Supply (M3) BGN mn Source: BNB /1 5/1 8/1 11/1 2/11 5/11 8/11 11/11 2/12 BGN Foreign IV. MONETARY SECTOR 1. Money supply In February 212, the broad money (monetary aggregate M3) was BGN bn or 71.3% of GDP In February 212, the annual growth rate of broad money (monetary aggregate M3) was 11.7% compared to 12.7% in January 212. At the end of February 212 M3 was BGN bn (71.3% of GDP) compared to BGN bn (71.3% of GDP) in January 212. Its most liquid component the monetary aggregate M1 increased by 18% annually in February 212 (18.9% annual growth in January 212). At the end of February 212, deposits of the Non-government sector6 were BGN bn (61.1% of GDP). Their annual growth rate was 12.3% in February 212 compared to 13.3% in January 212. The amount of deposits of Non-financial corporations was BGN bn (16.9% of GDP) at the end of February 212. Compared to the same month of the previous year it increased by 1.7% (11.3% annual growth in January 212). Deposits of Financial corporations increased by 1.9% annually in February 212 (18.5% annual growth in January 212). At the end of the month they reached BGN bn (5.2% of GDP). Deposits of Households and NPISHs were BGN bn (39% of GDP) at the end of February 212, increasing by 13.2% compared to the same month of 211 (13.5% annual growth in January 212). 2. Domestic credit In February 212 the domestic credit amounted to BGN bn and increased by 6.9 y/y At the end of February 212 the month the domestic credit was BGN bn and increased by 6.9% compared to February 211 (7.1% annual growth in January 212). In February 212 claims on the Non-government sector rose by 2.9% annually (3% annual growth in January 212) reaching BGN bn. At the end of February 212, claims on loans to the Non-government sector amounted to BGN bn (65.5% of GDP) compared to BGN bn (65.8% of GDP) at the end of January 212. Their annual growth rate was 2.4% in February 212 (2.5% annual increase in January 212). The change of loans to the Non-government sector was influenced by net sales of loans by Other monetary financial institutions (Other MFIs) - their volume for the last 12 months was BGN mn. On an annual basis, loans sold by Other MFIs were BGN 69.9 mn (of which BGN 2 mn in February 212), while the amount of repurchased loans was BGN 54.2 mn (of which BGN 1.6 mn in February 212). In February 212, loans to Non-financial corporations increased by 4.8% annually (4.7% annual growth in January 212) and at the end of the month amounted to BGN bn (41.2% of GDP). Loans to Households and NPISHs were BGN bn (23.3% of GDP) at the end of February 212. They decreased by 1% compared to the same month of 211 (.8% annual decline in January 212). At the end of February 212 loans for house purchases were BGN bn and increased by.7% (.8% annual growth in January 212). Consumer loans amounted to BGN bn and compared to February 211 they decreased by 1.1% (1.1% annual decline in January 212). On an annual basis other loans increased by 1% (2.9% annual growth in January 212) and reached BGN mn. Loans granted to Financial corporations were BGN mn at the end of February 212. Compared to February 211, they decreased by 9% (6.4% annual decline in January 212).

7 BULGARIA: ECONOMIC AND MARKET ANALYSES, December BULGARIA: ECONOMIC AND MARKET ANALYSES, February D om es tic cred it/g D P (% ) 2 /11 1/12 2/1 2 D om es tic cred it 6 6.6% 66.6% 67.% C la im s on g eneral g ove rnm ent -1.7%.5% 1.1% C la im s on n on-gove rn m ent s ec tor 6 8.2% 66.1% 65.9% o/w L oans 4 1.9% 41.6% 41.4% S ou r ce: B NB 's M o ne ta ry su rve y a n d Ba lan ce she e t o f t he b an kin g s yste m /11 4/11 Index values for the period February February 212 6/11 8/11 1/11 12/11 2/12 Source: BSE SOFIX BG 4 BG REIT BGTR 3 V.CAPITAL MARKET In February 212 Bulgarian share indices trends fluctuated Bulgarian share indices fluctuated different trends on February 29, 212. The SOFIX, which tracks the 15 most liquid shares on the Bulgarian Stock Exchange (BSE), closed at points and declined by 2.9% m/m. The broader BG4, which includes the 4 most traded shares, reached points reporting a.54% decrease versus previous month. Total turnover on the regulated market amounted to BGN 36,944, and reported 4.91% monthly decline. Eight of the 13 SOFIX components traded on BSE-Sofia advanced, four fell and one ended flat. Resort operator Albena was the top blue-chip gainer, ending 8.56% higher at levs. Financial and insurance group Eurohold Bulgariq led the SOFIX losers, closing 2.81% lower at 1.7 levs. The BG-REIT index, which tracks the performance of real estate investment trusts, went to points. The BG TotalReturn3, in which companies with a free float of at least 1% have equal weight, ended 3.82% lower at points. The CGIX Corporate Governance index, which includes companies strictly applying corporate governance principles, reached at 85. points. At the end of February 212 the total market capitalization of BSE Sofia registered BGN 12,296,996,74.31and increased by 5.96% y/y. VI. BANKING SECTOR As of 29 February 212, the profit of the banking sector amounted to BGN 118 mn. At the end of February there are no changes in the factors influencing the financial indicators of the banking system. The liquidity position level remained good the liquid asset ratio calculated under BNB Ordinance No. 11 was 25.87%. The accumulated asset impairment as of end-february was BGN 156 mn, and its monthly increase was fully covered by the net interest income growth. As of 29 February 212, the profit of the banking sector amounted to BGN 118 mn. The result achieved exceeded by BGN 3 mn the result for the same period last year. Impacted by the dynamics of attracted resources, in February the total assets in the system increased insignificantly (by.2%). The group of the five largest banks held 51.7% of the assets in the banking system, and preserved in relative terms its market position as of January. In the month under survey, cash decreased (by 2.6%, BGN 2 mn) and loans and advances (by.4%, BGN 231 mn) on system level, while securities portfolios increased (except those held to maturity). Throughout the month, gross loans (excluding those to credit institutions) decreased by.2% (BGN 9 mn) due to the slight contraction of all portfolio segments. Corporate loans and retail exposures reported a decrease of.1%, and exposures to non-credit (financial) institutions of 2.3%, respectively. Claims on credit institutions decreased by.7%, and those on central governments by.6%. Attracted funds reported a monthly decrease by.2% (BGN 165 mn), similar to that seen in gross loans and assets. The contraction of deposits and short-term financing from credit institutions and institutions other than credit ones was determining. At the same time, longterm financing, repo transactions, and subordinated liabilities increased. Deposits of individuals and households increased by.6% (BGN 2 mn) reaching 49.3% of the total amount of attracted resources in the system. The role of funds from internal sources continues to gain importance. In February the balance sheet capital of the banking sector increased by.3% (BGN 36 million) owing to the higher current financial result and increased revaluation reserves and other valuation differences. Bank's intermediation ratios (% of GDP) 2/11 1/12 2/12 Non-Financial Corpora tions 4 1.3% 4.8% 4.6% Financial Corpora tions 1.2% 1.1% 1.% Households and NPISH 2 4.7% 23.% 22.9% Consumer loans 9.8% 9.1% 9.1% Loa ns for h ouse purchase 1 1.4% 1.7% 1.7% Deposits of NFIs and other clients 6 2.6% 65.7% 65.7% Ass ets 9 6.5% 94.8% 94.6% Source: BNB 's Monetary survey and Balance sheet of the banking system, Ministry of Finance (GDP 211, 212)

8 BULGARIA: ECONOMIC AND MARKET ANALYSES, December BULGARIA: ECONOMIC AND MARKET ANALYSES, February METHODOLOGICAL NOTES EXTERNAL SECTOR CURRENT ACCOUNT The Current Account comprises the acquisition and provision of goods and services, income, and current transfers between the country and the rest of the world. The flows recorded on the credit side represent that part of the gross domestic product, which is provided to the rest of the world (exports of goods and services), as well as the provision of factors of production expressed by income receivable compensation of employees and investment income (interest, dividends, etc.). Recorded are also offsets for non-refundable real and financial resources received (transfers). The flows on the debit side represent the gross product created in the rest of the world and acquired by the domestic economy (imports of goods and services), as well as the acquisition of factors of production expressed by income payable. Recorded are also offsets to non-refundable real and financial resources provided. The Goods component of the BOP Current Account covers movable goods for which changes of ownership between residents and non-residents occur. The data on imports and exports FOB (Free on board) is based on customs declarations, as the codes used in them are after the Harmonized System for Description and Coding of Commodities of the World Customs Organization, introduced in 1988 and supplemented in With the January 26 data the Bulgarian National Bank and the National Statistics Institute jointly apply developed by them methodology for compilation of imports at FOB prices and receipts and payments regarding the freight transportation.2 The methodology is based on the analysis of the CIF-FOB correlations for the imports of goods depending on the different imports delivery categories, as well as on the different mode of transportation and nationality of the carrier. The geographical breakdown of the Goods item of the BOP is based on the following principles: For the intra EU trade in goods: - In case of exports (or dispatches) is the country (or Member State) of final destination of the goods - In case of imports (or arrivals) is the country (or Member State) of consignment of the goods. For the trade with third countries (outside EU) - In case of exports partner country is the country of final destination of the goods - In case of imports - partner country is the country of origin of the goods. The Services component comprises transportation, travel, and other services. The Bulgarian National Bank derives the data on freight transportation from foreign trade data and the data on passenger transportation from travel data on the basis of estimates. With the January 26 data the BNB introduced a new methodology for compilation of receipts and payments regarding the freight transportation. The freight transportation receipts are set up on the basis of estimated receipts of resident carriers related to the country exports of goods. The payments are calculated as an estimation of the payments made by residents on behalf of non-resident carriers related to the country imports of goods. The receipts and payments are estimated according to mode of transportation and nationality of the carrier. With the introduction of the system INTRASTAT with the January 27 data changes in the way of compilation of receipts and payments regarding the freight transportation of Bulgaria with the rest of the EU member states took place. Due to the delay in receiving the detailed data on trade of Bulgaria with the rest of the EU member states from the NSI, as of the date of publication of the preliminary balance of payments report for the corresponding month (42 days after the close of the reporting period) the preliminary compilation of receipts and payments of freight transportation is based on data for preceding years. These estimates are subject to revisions after receiving the preliminary detailed data (with breakdown by trade partners and by type of goods) on trade with the rest of the EU member states for the reporting month. Travel covers goods and services, including those related to health and education, acquired by travelers for business and personal purposes. By the end of 26 the data on travel is based on data from the Ministry of Internal Affairs on the number of travelers crossing the borders and on estimates of per capita expenditures, the latter based on the methodology for estimation of the receipts and expenditures from travel services Methodology For Estimation of the Receipts and Expenditures from Travel in the Bulgarian Balance of Payments (Bulgarian National Bank, Ministry of Trade and Tourism, 18 November 1999). As of the beginning of 27 data for the number and the structure of foreigners who visited the country are based on information from the border police and NSI estimates. With the January 21 data the BNB applies new methodology for estimation of the receipts and expenditures for travel and passenger transportation. The estimation model for the Travel item is based on the product of the number of travelers and the expenditure respective for a certain type of purpose of the travel (for more detailed information and questions, related to the methodologies applied, please contact us through the following press_office@bnbank.org). The estimates of the expenditures (receipts) by purpose of the travel are based on the data collected during the Border Survey among Traveling Bulgarians and Foreigners conducted by the BNB during the period July 2997 August 28. The new methodology was applied for the first time with the data for January 21, with back data revisions for the months of 27, 28 and 29. Other services item covers receipts and payments related to services other than transportation and travel (communication, construction, financial, leasing, insurance, cultural, sport and recreational services, etc.). Income consists of two categories: (i) compensation of employees, and (ii) investment income. Compensation of employees covers wages, salaries and other benefits paid to non-resident workers in the country or received by resident workers abroad. The compensation of employees comprises also income due to illegal employment. By the end of 26 the BNB estimates this flow in accordance with the Methodology for Estimation of Flows due to Illegal Employment (14 March 26).3 With the January 21 data the BNB applies new methodology for estimation of the Compensation of employees, credit. The new methodology was applied for the first time with the data for January 21, with back data revisions for the months of 27, 28 and 29. Investment income covers receipts and payments of income associated with external financial assets and liabilities. Included are receipts and payments on direct investment, portfolio investment, other investment, and receipts on reserve assets. Transfers are all real resources and financial items provided without a quid-pro-quo from one economy to another. Current transfers directly affect the level of disposable income of the economy, and the consumption of goods and services. That is, current transfers reduce the income and consumption potential of the donor and increase the income and consumption potential of the recipient. Included in the Current transfers are the EU pre-acquisition grants, other grants, gifts, inheritances, prizes won from lotteries, pensions, current taxes, social security contributions, etc. Sources: The Bulgarian National Bank receives information on current transfers from the Ministry of Finance, the Bulgarian Red Cross, the Agency for Foreign Aid, and from the reporting system of banks on transactions between residents and non-residents.

9 9 BULGARIA: ECONOMIC AND MARKET ANALYSES, February 212 ANALYSES, December 211 BULGARIA: ECONOMIC AND MARKET 9 The item Workers remittances, credit is a sub-item of the Current transfers, credit in the Current account of the balance of payments and is a balancing item for transfers without a quid-pro-quo in cash or in kind. Applying of a new methodology for estimation of these flows became necessary not only because the above described circumstances demanded it but because of the necessity to capture inflows transferred through both official and unofficial channels. The estimates of the workers remittances are based on the product of the number of Bulgarian emigrants, transferring money to their relatives and the amount of the average transfer. Such calculations are made separately for the official and the unofficial transfer channels. The sum of the money transferred via those two channels is recorded as the amount of Workers remittances to Bulgaria. The data on the number of the Bulgarian emigrants are based on information from the State Agency for Bulgarians abroad, from the Bulgarian embassies and from Eurostat. The data on the percentage of the Bulgarian emigrants, transferring money; the shares of the official and unofficial channels and the average transfer for each of the channels used are based on the data collected via the Border survey. The new methodology was applied for the first time with the data for January 21, with back data revisions for the months of 27, 28 and 29. CAPITAL ACCOUNT The Capital Account consists of two categories: (i) capital transfers and (ii) acquisition or disposal of non-produced, non-financial assets. If in kind, a capital transfer consists of (i) a transfer of ownership of fixed assets, or (ii) forgiveness of a liability by a creditor when no counterpart is received in return. If in cash, a transfer is a capital transfer when it is linked to, or conditional on, the acquisition or disposal of fixed assets (for example, an investment grant). FINANCIAL ACCOUNT The Financial Account comprises all transactions (actual and imputed) in the external financial assets and liabilities of an economy. The external assets and liabilities are primarily classified according to type of investment. Included in Financial Account are (i) direct investment, (ii) portfolio investment and (iii) other investment. Direct investment covers direct investment abroad, direct investment in reporting economy and mergers and acquisitions. Direct investment is a category of international investment in which a resident of one economy a direct investor acquires a lasting interest (at least 1% of the ordinary shares or the voting power) in an enterprise resident in another economy a direct investment enterprise. The direct investment includes both the initial transaction, through which the relationship between the direct investor and the direct investment enterprise is established, and all subsequent transactions between them. The direct investment covers transactions relating to changes in the direct investor s share in the equity capital of the direct investment enterprise, inter-company debt transactions as well as the share of the direct investor in the undistributed earnings/loss of the direct investment enterprise. Direct investment is reported on a directional basis: direct investment abroad as an asset, and direct investment in the reporting country as a liability. The sub item Mergers and Acquisitions shows the transactions related to mergers and acquisitions. The purpose of its inclusion was to eliminate the influence of such deals over the reported foreign direct investment data. The international practice shows that these transactions have hardly any real impact on the production capacities and employment and the conclusions drawn from the interpretation of foreign direct investment data in which data on mergers and acquisitions are included might be misleading about investment flows, developments, branch and geographical structure. ( European Central Bank, Eurostat, Foreign Direct Investment Task Force Report, March 24, para.332) Portfolio investment includes portfolio investment, assets and portfolio investment, liabilities. Portfolio investment covers transactions in shares and equity if the investor s share in the capital is less than 1%, transactions in bonds, notes, money market and other tradable securities. Other investment covers trade credits, loans, currency deposits, and other assets and liabilities. According to the balance of payments conventions trade credit arise from the direct extension of credit from a supplier to a buyer, i.e this is a credit extended by a trade partner without issue of a tradable security. Loans item includes received and paid principals on short- and long-term loans between non-bank financial institutions, insurance companies and pension funds, the Bulgarian National Bank and the Ministry of Finance. Other investment covers trade credits, loans, currency deposits, and other assets and liabilities. According to the balance of payments conventions trade credit arise from the direct extension of credit from a supplier to a buyer, i.e this is a credit extended by a trade partner without issue of a tradable security. Loans item includes received and paid principals on short- and long-term loans between residents and non-residents if no issue of a tradable security is involved with these loans. Transactions concerning disbursements and repayments of principals on IMF loans and disbursements on loans on BOP support are not included in the item Loans. They are recorded in the relative items of group E. Reserves and Related Items. The Currency and Deposits component presents on the assets side the changes in the residents currency deposits held abroad, and on the liabilities side the changes in the liabilities of the resident banks to non-residents in domestic and foreign currency. Following the basic accounting principle and conventions set in the Balance of Payments Manual (IMF, 1993), when compiling that item the Bulgarian National Bank excludes any changes therein due to exchange rate changes. Items Other assets and Other liabilities includes all transactions on miscellaneous accounts receivable and payable not included elsewhere and transactions in arrears. The Net errors and omissions component is an offsetting item. This component exists in the BOP presentation because the compilation system used by the Bulgarian National Bank is not a closed one but is a combination of different sources of information. Unlike other statistical reports, such as for example the monetary statistics, the collecting of the data necessary for the balance of payments compilation could not be restricted to the accounting records of the banks as the only source of information. The fluctuations in the Net errors and omissions, both in sign and in size, are mainly due to: (i) revisions of export and import data, (ii) the development of the methodology for compilation of certain balance of payments components and (iii) the existence of objective obstacles to the collection of data on certain balance of payments items. RESERVES AND RELATED ITEMS Reserve assets include those external assets that are readily available to and controlled by the central bank (government) for direct financing of balance of payments imbalances. The reserve assets comprise monetary gold, SDRs, reserve position in the Fund, foreign exchange assets (consisting of currency and deposits and securities), and other claims. The entries under this category pertain to transactions in the BNB's external holdings which are administered by the Issue Department. The data on reserve assets changes included in the BOP table excludeе valuation changes, due to exchange rate and market price changes.