Bulgarian Economy

In 2007 the country joined the European Union. According to the World Bank, in 2006 Bulgaria attracted the highest levels of foreign direct investment, as a share of GDP, among Eastern European countries. The international financial crisis led to a new flow of investment which could barely cover the current-account deficit in 2007--at 98.2%. In early 2007, to attract additional foreign investment, the Bulgarian Government lowered corporate tax rates to 10%, reportedly the lowest rate in Europe. A flat-tax rate of 10% for personal income, in place as of January 1, 2008, was further decrease domestic labor costs and helped reduce the share of the "gray" economy.

Optimism and stability. This was the shortest forecast on the economic development of Bulgaria in 2008. Local and foreign analysts expected the economic growth to continue in 2008 year and to stand at some 6.4 to 6.5 pct. The main factors determining that growth are the accumulated capital in the economy, a result of the investment activity in the country, as well as the fresh input of EU structural funds. The sectors which were expected to mark the greatest rise in 2008 are finance and real estate. Another promising sector is tourism which was seen to continue its gradual growth in 2008.

Real estate - Gradual Rise. This is the classic 'pendulum market', swinging between extremes because of the presence of many unprofessional players. So far each success in real estate was acompanied by a price rise and made the players expand supply in anticipation of a new success. The forecast for 2008 is that the pendulum will slow down. Analysts and developers have already started to note a withdrawal of interest from low quality vacation complexes and residential housing built before 2000. Although the demand in the three main sectors of the real estate industry - residential, office and retail - continues to be higher than the supply, the consumers have realised they have a choice and have raised their requirements accordingly. A balance between demand and supply in the sector is seen to be reached no earlier than 2009 or 2010.

Finance - Future on the Scales. In terms of figures the business of Bulgarian banks looks more than healthy; it is growing quicker than the economy as a whole. The reason for this is simple, Bulgarian firms are expanding and looking for funding, and citizens are still not as debt-bound as their western European counterparts. This impetuous growth made the Bulgarian National Bank (BNB) take some restrictive measures by raising the minimal obligatory bank reserves, but this did not lead to a drop in loans. it is very likely that BNB will use some other restrictive tool in 2008, yet bankers forecast a slowing down in the credit activity in the year; from a 60 pct growth in 2007, to between 20 or 30 pct in 2008.

The more significant change in the sector is expected with regard to more expensive funding, since the higher interest rates in the EU and the U.S. subprime crisis have not been felt in the Bulgarian finance sector so far.

Tourism - Bulgarians Become Important. One of the trends in the sector that will develop actively in 2008 is golf tourism. There are now three golf courses in the country and another five are under construction. Hotel and vacation villages construction will also continue, with the building up of the last free spaces on the seaside, in the northernmost and southernmost parts of the coastline. Analysts also expect a rise in individual trips at the expense of package tours, since all segments of the package are becoming cheaper on an international scale, from air tickets to hotel rooms. A new trend is the sector's refocusing on local tourists, through several campaigns for attracting the attention of Bulgarians to Bulgarian resorts. They will, however, continue to travel abroad, again as a result of the global price drop of tourist services.

Cultural and conference tourism will be developing actively in 2008 as well as SPA tourism. Big investments in winter tourism infrastructure are expected to come in a few years.

• GDP (2007 est.): $41 billion.
• Real GDP growth: 6.2% (2007); 6.3% (2006); 6.2% (2005); 6.6% (2004); 5.0% (2003).
• Per capita GDP (PPP, 2007 est.): $11,300.
• Inflation rate: 12.5% (2007), 6.5% (2006); 5% (2005); 6% (2004); 5.6% (2003).
• Unemployment rate: 7.7% (2007 average), 6.62% (November 2007), 9.61% (2006 average); 11.5% (2005); 12.7% (2004 average); 14.25% (2003 average).
• Natural resources: Bauxite, copper, lead, zinc, coal, and timber.
• Official exchange rate: Lev per $1 U.S.=1.42 (2007 average); 1.56 (2006 average); 1.57 (2005 average); 1.58 (2004 average); 1.73 (2003 average).