Boston, MA -- (ReleaseWire) -- 02/20/2014 -- Bulgaria's economy will see growth accelerate in light of higher public spending and elevated export growth. However, elevated political risk will dampen fixed investment and household spending in the economy.
Political risk is threatening to undermine Bulgaria's sovereign credentials, which could further derail the country's convergence process with the EU and cloud the economic outlook over the coming years.
Stronger manufactured goods exports to Europe and the prospect of rising remittance flows following the lifting of travel restrictions in the EU for Bulgarian nationals informs our view that the current account is set to remain in surplus for the foreseeable future.
Bulgaria's exchange rate peg to the euro will remain comfortably in place, as an internal devaluation has seen the economy correct its external imbalances. A current account surplus and rising foreign reserves suggest that the peg faces few risks over the coming years.
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Major Forecast Changes
We revised up our current account surplus forecast from 0.7% of GDP to 2.1% in 2014 and 1.6% in 2015 from our previous forecast of 0.5%.
We have raised our current account deficit forecast for 2011 to 8.0% of GDP from 6.6% previously on account of surging imports in the first half of the year, driven by loose monetary policy at home and higher global commodity prices.
Key Risks To Outlook
We note that the near-term risks are to the downside, given the possibility of another early election this year and the ongoing legislative deadlock.
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