• The acceleration of the structural reforms and the recovery of the discipline in public finances are among the factors leading to improvement of the GDP growth forecasts

UniCredit Group’s economists published in their CEE Quarterly a positively changed forecast about Bulgaria’s GDP growth. According to the Group’s analysts, Bulgaria will finish 2009 with a GDP growth of minus 5.2% (compared to minus 6.3% initial forecast), and for 2010 the expectations are for minus 1.5% (compared to minus 2.5%).

“There are several factors that make us more optimistic about the prospects of the Bulgarian economy than we were a few months ago. First of all, the rebalancing of the current account is going faster than expected thus external financing need can faster reach levels that markets are ready to tolerate”, Christofor Pavlov, Chief Economist of UniCredit Bulbank, explained. Another positive fact is that although FDI dropped by half they still fully cover the current account deficit. Positive is also the effect of renewed structural reforms together with the stabilization of public finances in the second half of 2009.

Despite the expectations for a further budget deficit increase, we do not expect a dangerous weakening of the fiscal position because the tax collection and cost control improvement measures are beginning to give the required results, according to CEE Quarterly. In their analysis the Group’s economists place an emphasis on the progress in the combat against corruption, which contributed to the unblocking of considerable EU aid and combined with the speeding up of the structural reforms this preconditioned S&P’s upgrade of Bulgaria’s credit rating outlook from negative to stable in December 2009.

In order for the Bulgarian economy to reach the growth levels that are close to the potential, approximately two more years will be needed, UniCredit’s economists think. This will be the period when the process of transferring production resources (capital and workforce) from the domestic-market oriented overheated sectors to export products should gain momentum.

The household sector will also need time to join the recovery process. The limited consumer costs are the main reason for the negative economic growth projected for 2010. Consumers will be under pressure because indebtedness in Bulgaria is greater than in most CEE countries. Job losses are abound to reach their peak in 2010 when the restructuring of the inflated public sector is expected to continue, UCG’s analysts think.

The clearing out of the remaining macro-economic imbalances will continue to limit the economic growth in 2010. In case structural reforms and the recovery of our main foreign trade partners’ economies persist, in 2011 the level of economic activity in Bulgaria will gradually start to intensify and employment, even if slowly, will improve. The speeding up of the economic growth in 2011 will be supported by the stabilization of the real estate prices together with the regularization of lending. The recovery process will be completed in the second half of 2011, when the economy will begin to report growth rates close to potential, UCG’s analysts wrote.

Table: Macroeconomic indicators and forecasts

	2007	2008	2009П	2010П	2011П
GDP (EUR billion )	28.9	34.1	33.3	32.9	33.7
Population (mio)	7.6	7.6	7.6	7.5	7.5
GDP per capita (EUR)	3782	4485	4394	4359	4484
Real GDP (change in % p.a.)	6.2	6.0	-5.2	-1.5	1.7
Individual consumption, (change in % p.a.)	5.1	4.5	-5.3	-4.1	-0.7
Gross capital formation (change in % p.a.)	21.7	20.4	-25.4	-14.0	-3.5
Government consumption (change in % p.a.)	3.4	-1.4	-0.9	-0.1	2.0
Export (change in % p.a.)	5.2	2.9	-11.8	-0.3	3.4
Import (change in % p.a.)	9.9	4.9	-22.5	-8.2	-1.3
Inflation, average (change in % p.a.)	8.4	12.4	2.8	0.3	0.8
LEONIA, end of period (%)	4.56	4.07	0.23	0.80	2.35
Average monthly salary, (in EUR)	220	268	288	274	268
Unemployment (%)	6.9	6.3	9.3	12.8	12.6
Budget balance / GDP (%)	3.5	3.0	-0.7	-1.7	-1.7
Current account (EUR billion )	-7.3	-8.7	-3.2	-2.1	-2.4
Current account / GDP (%)	-25.2	-25.4	-9.6	-6.4	-7.1
FDI net (billion EUR)	8.4	6.1	3.2	2.6	2.3
FDI net / GDP (%)	29.0	17.8	9.5	7.9	6.9
Foreign debt gross (EUR billion)	29.0	37.0	36.8	37.8	39.0
Foreign debt gross / GDP (%)	100.3	108.4	110.7	115.0	115.9
Official FX reserves (EUR billion)	11.9	12.7	12.9	13.5	15.1
(Current account – FDI) / GDP (%)	3.8	-7.6	-0.1	1.5	-0.2
Official FX reserves / Gross Foreign Debt (%)	41.2	34.4	35.1	35.7	38.8

The full CEE Quarterly 2010 report is available in English on the webpage of UniCredit Bulbank www.unicreditbulbank.bg, Economic Information section

Contacts:

UniCredit Bulbank, Public relations and corporate communications

Victoria Blajeva, tel: 02/9264 993, wjlj/ebwjepwbAvojdsfejuhspvq/ch

Ekaterina Ancheva, tel: 02/9264 963, flbufsjob/bodifwbAvojdsfejuhspvq/ch