Bulgaria Infrastructure Report Q3 2016 - New Report Available

We currently forecast 1.8% y-o-y real growth this year, mainly due to infrastructure industry (particularly projects in the road and railway sub-sectors), since it is expected to expand by 2.2% y-o-y in 2016 and it contributes more than 56% to the total construction. With EU-funded regional development programme over 2014-2020 underway, civil engineering is anticipated to remain the major growth driver of the construction industry. The development of the country's road and railway network with the support of EU funds will continue as well as the implementation of energy projects.

Latest Updates And Structural Trends

Driven by transport infrastructure projects, we forecast Bulgaria's construction industry will grow by an average of 1.9% over 2016-2025.

Bulgaria remains highly dependent on EU funding for infrastructure projects, particularly in the transport sector. As such, slow EU recovery will limit the speed of Bulgaria's transport infrastructure growth.

Improved absorption of EU structural funding will be supported by public investment projects to a certain extent.

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World Bank will provide loans worth EUR550mn to Bulgaria for the next six years in order to support financial stability, strengthen electricity sector and improve energy efficiency.

In March 2016, the Bulgarian Development Bank received a EUR150mn loan from the Council of Europe Development Bank (CEB) for energy efficiency projects (SeeNews, 2016).

We do not expect investment in renewable energy infrastructure to increase given the Bulgarian government decided to terminate incentives for new renewable energy capacity in March 2015.

The outlook for the residential sector is not positive, especially from 2019 onwards. The housing market remains weak following a collapse in prices since 2008 and the high levels of indebtedness will act as a headwind to future investment.

Risk/Reward Index

Bulgaria scores 49.9 in our Infrastructure RRI rising from the score of 49.6 in the previous quarter.

Compared to the regional average of 50.3, Bulgaria scores poorly ( 37.5) in Industry Rewards, with the country's performance undermined by the small absolute size of its infrastructure market and the sector's limited growth prospects.

The retendering of contracts for highways has revealed deep-rooted problems and inconsistencies in the concessionary framework for infrastructure projects. As a result, Bulgaria's score of Industry Risks languishes at 35.0, the same score with the previous quarter, 32.1 points below the regional average of 67.1.

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