Macroeconomic Forecast Bulgaria

Though Bulgaria's current account deficit narrowed slightly over the January-May period by 6.0% y-o-y, we maintain our view that the current account deficit will remain above 20% of GDP in 2008. As a result of a widening trade deficit (forecast to reach EUR7.3bn in 2008 from EUR6.2bn in 2007) and moderating real GDP growth, we forecast the current account deficit reaching 21.3% of GDP in 2008, narrowing marginally from 21.5% in 2007. We caution that Bulgaria's substantial current account deficit will continue to pose a risk to economic stability over the medium term, particularly should foreign direct investment flows freeze up and fail to adequately cover the shortfall.

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