New Market Study Published: Bulgaria Infrastructure Report Q1 2014

From: Fast Market Research, Inc.
Published: Thu Jan 09 2014

We continue to forecast a contraction in Bulgaria's construction industry in 2013, estimated at 3.6%. This is supported by official data indicating a contraction of 3.8% in H113. The industry's recession, which started in 2009 and experienced a record low of -17.9% in 2010, has continued throughout 2013. However, we believe that the worst could now be over. Signs of growth are expected in the transport sub-sector from 2014, for which we forecast positive growth of 3.4% (as a result of low base effects), mostly driven by road and railway projects. This leads us to forecast a return to growth in the overall construction sector from 2014.

Key developments in Bulgaria's infrastructure sector:

* The municipality of Sofia and the European Investment Bank (EIB) signed a EUR50mn (US$68.97mn) loan agreement in October 2013 to fund a transport infrastructure programme in Sofia, during the period 2013-2016. The project includes construction, reconstruction, expansion and rehabilitation works for 22 small road schemes in the capital, totalling around 56km. Tram tracks and catenaries will also be modernised.
* Additional sections of the Struma motorway development project secured EUR274mn (US$359.48mn) in financial assistance from the European Commission. Work comprises the construction of a dual carriageway between Dolna Dikanya and Blagoevgrad, and from Sandanski to the border crossing with Greece at Kulata. The three sections - lots 1, 2 and 4 - cover 68.5km and are scheduled to be completed by the end of 2015. Work is also due to include preparation for the construction of the Blagoevgrad-Sandanski section (lot 3), entailing tunnels bypassing the Kresna gorge.
* However, infrastructure projects in Bulgaria continue to face strong headwinds due to the lack of investor confidence and endemic corruption. We only forecast positive growth to return to the construction industry in 2014 with 1.4% real growth, after five years of recession.
* Despite signs of stabilisation in the labour market, employment levels are well below previous years, and the unemployment rate remains near a multi-year peak. We do not expect a significant acceleration of employment growth in coming quarters, preventing any rapid rebound in consumption even if consumer sentiment were to improve further. Further weighing on households' ability and willingness to spend is ongoing weakness in the housing market, which is once again seeing home values falling on a y-o-y basis. With one of the highest home ownership rates in the world, this will be a significant impediment to stronger private consumption over the medium term.

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