Saturday, March 21, 2009

Do They Have Parachutes In Bulgaria?

Someone was asking in comments yesterday about hard data to confirm the general impression that the economy is tanking. Well by accident I came across this little detail today: retail sales down 25.7% year on year in January. For an economy which has been driven by a consumer borrowing and lending boom, that is pretty dramatic evidence I would say.

Retail sales revenue in Bulgaria declined by 25.7% in January from the same month of last year, the National Statistical Institute ( said in a statement. The slump was attributed to a sharp decrease in retail sales of larger consumer goods, although a decline is normal for the beginning of each year. A major 31.5% drop was reported in sales of vehicles and technical maintenance. Revenue generated by non-food sales went up by 3.0% year-on-year, the data showed. Revenue from food, beverages and cigarettes sales showed a minor increase of 0.5%


Well I am finding more data, and I will keep adding it a bit at a time.

Bulgaria's industrial output fell by 19% in January 2009 month-on-month, after rising by a monthly 1.7% in December, preliminary data of the National Statistics Institute (NSI) showed on Tuesday. This is the fourth drop in a row, causing the index to go below the 2006 levels. The industrial output index is mainly determined by the indicators of the processing industry, which dropped by 21,4% in January, compared to December 2008. There is a 66,5% decrease in the production of metal goods, excluding machines and appliances. In the production of non-metal goods the drop is by 42,1%, and in the food processing industry by 24,8%.

As can be seen in the chart below, the output index is now somewhere round the level of summer 2006, and falling.

Sharp Current Account Contraction

According to the Bulgarian National Bank last week Bulgaria's current account deficit was EUR 439.7 M in January 2009, down from EUR 806.8 M in January 2008.

PM Sergey Stanishev said "the country's deficit has begun rapidly shrinking which means that the economy has unsurprisingly slowed down," Bulgarian National Radio reported.

The current and capital account deficit was EUR 288.7 M in January compared to EUR 806.2 M recorded in the previous year.And January's trade deficit was EUR 339.3 M, narrowing from EUR 607.8 million in 2008. All this is consistent with a very sharp and rapid contraction of the economy, as imports collapse and fund flows dry up, rather than any positive news on exports.

Moody's Affirms Baa3 Rating

Credit ratings agency Moody's affirmed on March 20 Bulgaria's Baa3 local and foreign currency ratings, with a stable outlook, but said that Bulgaria's economy faced tough times this year.

"Bulgaria is likely to experience a difficult recession in 2009 as the economy suffers from shrinking exports and slowing inflows of foreign capital," Moody's sovereign risk group analyst Kenneth Orchard said in a statement. "Nevertheless, many years of prudent fiscal policy and low debt mean that the government is well positioned to cope with the situation."

Having averaged Budget surpluses of 2.7 per cent of gross domestic product (GDP) since 2004, the Cabinet has strengthened its financial position, but the main threat did not come from the Government debt, which was a very low 14 per cent of GDP.

"Many years of strong domestic demand growth have left the Bulgarian economy with heightened vulnerabilities. Domestic credit, external debt and the current account deficit all increased at rapid rates from 2005 to 2008," the ratings agency said.

Although the banking sector was in good shape, with relatively high capital adequacy and liquidity ratios by international standards, it would not take long for the situation to worsen as the global crisis takes deeper roots in Eastern Europe.

"The decline in foreign financing will probably cause a sharp downward adjustment in the current account deficit, implying declining output and weak government revenue growth," Orchard said. "However, Moody's believes that low wages and a flexible labour market will ease the adjustment and ultimately allow Bulgaria to rebound when the regional economy improves."

Bulgaria's most pressing problem was the large debt accumulated by the private sector. "Moody's believes that a greater risk comes from the large amount of private sector external debt that must be re-financed in 2009," Orchard said.

"Short-term external debt totalled around 13 billion euro at the end of 2008, which is equivalent to 40 per cent of GDP. Much of this debt is likely to be rolled over, but automatic re-financing can no longer be assumed in the current financial environment."

The low Government debt was a safety net, because it allowed Bulgaria to borrow funds to support the private sector and the currency board without threatening the government's creditworthiness. The debt-to-GDP ratio could rise and still remain well below the EU average, Moody's said.

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