ANALYST COMMENT – Bulgaria’s 9-Mo C/A Gap Widens to 15.8% of GDP, Seen Further Widening by Year's End

Three analysts polled by SeeNews issued the following comments on the central bank’s figures indicating that the shortfall on Bulgaria’s current account through September rose to 5.381 billion euro ($6.743 billion) from 3.900 billion euro a year earlier.

AGATA URBANSKA, EMERGING EUROPE ECONOMIST AT ING BANK, LONDON:

“[Current account gap is] still widening. The combination is interesting of the current account and GDP growth and that is really a big question if slowing domestic demand is going to help narrowing of the current account in the coming 12 months. Third quarter current account data does not necessarily support that view maybe.”

“The [third-quarter] current account gap looks that it is just being flat versus second quarter so just 24% of GDP, so the same as the second quarter data and at the end of the year I think it is going to be just above 24% of GDP. That’s on 12 months rolling basis. We had 21.8% last year and that is widening.”

“The challenge for 2009 is that we are definitely talking about domestic demand slowing down, imports will be slowing down as well but exports equally will be under pressure because all the trading partners are slowing down. So I don’t necessarily see significant narrowing of the current account deficit in 2009.”

TOTH GYULA, EASTERN EUROPE ECONOMIST AT CAIB/BANK AUSTRIA:

“Current account deficit is still up year-on-year which is not very positive but if you look only at the September figure then there is some improvement so the deficit is lower by 1.2% which is the first sign of stabilisation in my view. The main reason is that export growth was bigger than import growth.”

“Apart from that on the financing side, FDI coverage is still not that bad but net FDI came down quite a lot on year-on-year basis and portfolio investments are negative as well. So these are the small negatives.”

“Our main view about Bulgaria is that it will be very very difficult to finance this current account deficit in the current global environment especially that FDI is slowing gradually but other portfolio investments are coming off much faster, so the current account deficit itself has to improve much more in the coming quarters because simply it will be very difficult to finance it.”

“In 2009 we expect 12.5% and for this year we expect 16.5%. We expect a very significant improvement in the fourth quarter and much more in 2009 so we expect it to improve and in our view this improvement will come simply from the fact that it is impossible to finance this amount of current account deficit in this environment so import growth will slow down and what this means is that GDP growth will be relatively soft.”

PETER BILEK, RESEARCH FELLOW FOR SOUTH-EAST EUROPE WITH HUNGARY-BASED INTERNATIONAL CENTRE FOR ECONOMIC GROWTH (ICEG) EUROPEAN CENTRE:

“The [nine-month] current account deficit reached 5.4 billion euro ($6.8 billion) which is quite huge in comparison with previous year’s data, which is 15.8% of GDP. This is relatively huge external imbalances due to the high foreign trade deficit which reached 19% of GDP – this data mainly follows the previous trend of external imbalance because the high domestic demand influenced mainly these trends and the current uncertain global trends will really influence the fourth quarter data.”

“This means that in 2008 the Bulgarian current account deficit will reach about 24% of GDP and the trade balance will reach an even higher percentage of GDP – it will be close to 30%.”

“Unfortunately in line with these trends the GDP growth rate will slow down a bit. In the first and the second quarter of 2008 the GDP growth rate was above 7.0% and now, according to the flash estimate [of Bulgaria's GDP growth released by the country's statistics office earlier on Friday] the GDP growth for the third quarter decreased to 5.6% and in the fourth quarter it maybe even lower – close to 5.0% and accordingly the overall yearly GDP growth rate will be close to 6.0% in this year and it will be even lower next year.”

“It [the current account balance] will be the highest in European Union reaching 24% of GDP and it is expected to decrease only slightly next year mainly due to the current global situation though in Bulgaria domestic demand will diminish a moderate slightly so the import factor in this situation will be lower and accordingly the current account deficit will be lower as well.”

($ = 0.7981 euro)