As a recent report by the Intesa Sanpaolo Study Centre, in Bulgaria the stimulus generated by the expansionary monetary policy (with the policy rate reduction down to 0,01%) and the weakening of the exchange rate, pegged to the euro, favored the strengthening of the positive cyclical phase. The unemployment rate, still high but declining, and the growth of real wages have facilitated household demand, while investments have also been encouraged by European funds. Analysts estimate that in 2015 GDP accelerated to 2,6% from 1,5% the previous year, when the economic dynamics had been conditioned by the liquidity crisis which hit the banking system in June. The favorable economic conditions observed in 2015 are expected to continue this year as well.
The country remained in deflation throughout 2015 due to weak international energy and commodity prices. Inflation is expected to remain subdued and subject to downside risks related to the weak recovery in energy prices. The public deficit is estimated to decline to around 3,0% in 2015, while this year the deficit could fall slightly to 2,7%, with public debt increasing to 32,8% of GDP from 31,8% in December. From January to October, the current balance of payments was approximately 1,1 billion euros. The capital account was positive as was the financial one. For the whole year, analysts estimate a current account surplus of 0,9% of GDP, followed by a decline to 0,2% in 2016. External debt fell from its 2009 peak (107% of GDP) to 96% of GDP in 2014.
Following the liquidity crisis that hit some of the main local banks in June 2014, the EU has opened a procedure for macroeconomic imbalances, recognizing the need to strengthen the banking system of Bulgaria and in particular to intensify the supervisory activity by the Central Bank. Another element of the country's economic vulnerability is represented by the low diversification of productive activity, where agricultural and extractive products represent over 45% of total exports. In this context, Fitch places the country in the BBB- class, S&P assigns Bulgaria a BB+ rating and Moody's assigns it a Baa2 rating.
