Boston, MA -- (SBWIRE) -- 04/11/2014 -- We estimate that the construction industry in Bulgaria registered real growth of -2.8% in 2013 - aligning with official data published for the first nine months of the year. The recession in construction industry, which started in 2009 and saw the sector register a contraction of 17.9% in 2010, continued throughout 2013. However, we believe that the worst is now over. Signs of growth are expected in the transport infrastructure sector from 2014, mostly driven by road and railway projects. This leads us to forecast positive growth of 1.4% for the year.
Key Trends And Developments
- 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 about 56km.
- 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 1.5% real growth, after five years of recession.
- Elevated unemployment reinforces our view that Bulgaria's economy continues to face major challenges in the form of low business and consumer confidence. Although we expect the unemployment rate to decline in line with faster growth in 2014, we caution that a continued spike in the number of unemployed will hinder growth in the residential sector.
- Our Country Risk team expects political instability is likely to be prolonged, posing a downside risk to our forecast for the construction industry. A negative investor sentiment towards the country will particularly affect the commercial property market (retail and office space) and macro-infrastructure projects, for which the government has no capacity to fund.
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