BMI View: The Port of Varna will see cargo growth in the low single percentage digits this year, both in terms of bul k tonnage and containers handled. Tonnage has always been rather volatile at the port. Our numbers reflect a steep decline last year according to official data. For 2015, we now expect a very small recovery. The general deceleration of Bulgaria's foreign trade growth will be a key factor. Box traffic growth will also be subdued, but a little stronger than last year, in part because - although constrained - domestic consumption remains the main driver of the economy and tends to require a high proportion of containerised imports.
The outlook for the Bulgarian economy is one of subdued growth. On the plus side, domestic consumption is receiving a boost from low international oil prices, growing real wages, and falling unemployment. But an overvalued national currency, high private sector debts, and weak investment are acting as obstacles to growth. The Bulgarian lev is pegged to the Euro. Lacking exchange rate flexibility, Bulgaria has pursued policies aimed at achieving an internal devaluation - a reduction of internal prices to regain competitiveness. Meanwhile, real wages grew 4.6% in 2014, boosting disposable incomes. Given that demand for credit remains weak, we expect rising disposable incomes to be the driving force behind Bulgaria's largely credit-less recovery. These factors are reflected in our forecast of 1.1% GDP growth this year (down from 1.7% in 2014). Next year, we believe growth will pick up modestly to 1.4%. Over the medium term (2015-2019), we expect it will average 1.7% per annum.
Headline Industry Data
2015 port of Varna tonnage throughput forecast to grow 1.24% to 13.053mn tonnes; over the medium term (to 2019), we project an average annual increase of 2.0%.
2015 port of Varna container throughput forecast to grow 2.27% to 135,642 twenty-foot equivalent units (TEUs); over the medium term, we project a 3.5% average annual increase.
2015 total trade growth forecast at 1.98%, down from an estimated 3.11% in 2014.
Key Industry Trends
Bulgaria looking at Egyptian connection: Bulgarian companies plan to use the Egyptian port of Damietta as a distribution hub to ship around 4mn tonnes of wheat a year to African markets. Rumen Petrov, Bulgarian ambassador to Egypt, stated this in April during a meeting with the Egyptian supply minister, Khaled Hanafy. Petrov said Bulgarian companies were also assessing the possibility of investing in manufacturing and edible oil processing in Damietta. Hanafy said projects in the port would take its wheat storage capacity up to 7.5mn tonnes. There were also plans for investment in five industrial zones for crops and food commodities, including an industrial zone for grain mills to produce flour and bran with a capacity of 1.5mn tonnes per annum for local consumption and exporting,
Investment in Port Varna: Investment in the Port of Varna in 2015 will total around BGN6.5mn (USD3.68mn), according to its Chief Executive Petar Seferov. He said that the money would be used to improve equipment and facilities and estimated current throughput at around 10mn tonnes, distributed between the two terminals, Port Varna East and Port Varna West. Export shipments would represent around 70% of total throughput. Container handling had totaled over 132,600TEUs in 2014. Since the beginning of 2015, a total of over 2.1mn tonnes of cargo had been processed at the port, up by 26% from the same period of 2014. The CEO of Port Varna pointed out that Bulgaria currently lacks a modern port terminal specialised in handling grain exports. He suggested that the problem would be remedied with the construction of a new intermodal terminal.
Bulgarian crew caught in Iran incident: Bulgarian crew - reportedly including the captain - were captured and held by the Iranian authorities at the end of April, when they seized the Maersk Tigris ship, which was considered to be trespassing in Iran's territorial waters. Singapore-based Rickmers Shipmanagement manages the ship which was navigating through the Strait of Hormuz in international waters.
Key Risks To Outlook
Bank sector stability and political uncertainty remain key risks to our forecast scenario. A more prolonged period of stagnant consumer and business confidence, triggered by governmental collapse or another banking crisis, could both deepen and prolong Bulgaria's current deflationary period. This would push real interest rates higher, tighten domestic credit availability and further damage investor sentiment towards the country.