Quarterly revision of the macroeconomic projections

1. Quarterly revision of the macroeconomic projections Dimitar Bogov Governor May, 2013

2. CONTENTS • Macroeconomic projections for 2013 -2014 • External assumptions • Main macroeconomic scenario for 2013 -2014 • Comparison with the previous projection

3. Macroeconomic projections for 2013-2014External environment • In the period between the two projections, improvement in the global economic perceptions has generally been registered, given stabilization on the financial markets • However, the expectations for activity reduction in the Euro area in 2013 and moderate recovery in 2014 stayed on, in conditions of the new “debt tremors”, destructed monetary transmission, uncertain ambient and low confidence level

4. Foreign demand • Expectations for slightly deeper decrease in the foreign effective demand in 2013 compared to the previous projection and its moderate recovery in 2014, which is in line with the January projection

5. Foreign effective inflation • In the first quarter of 2013, the foreign effective inflation beyond the expectations • Minimal upward revision for 2013 and moderate upward correction for 2014 • Expectations for more significant acceleration of the annual foreign effective inflation dynamics in 2013 and its moderate deceleration in 2014

6. World prices of the basic products • Generally, downward revision of the world stock exchange prices for 2013and 2014, relative to the January projection • Decrease in the crude oil prices in 2013 and 2014, compared to the increase in 2012 • Lower metal prices, downward adjustment in 2013 and slight rise in 2014 • No pressures of the world food price as previously anticipated

7. Macroeconomic projections for 2013-2014GDP • Almost unchanged foreign demand, as well as almost unchanged perceptions for the labor market, foreign direct investments and credit activity relative to the previous projection • The estimations for the economic growth in 2013 and 2014 unchanged compared to the previous projection • Moderate recovery of the economy in 2013 and growth acceleration in 2014, given expectations for positive effects of the structural changes on the exports and moderate increase in the domestic demand • Closure of the negative output gap in the second half of 2014

8. Macroeconomic projections for 2013 -2014 GDP components • After the decrease in 2012, moderate recovery of the exportsin 2013 and its further intensification in 2014 is expected, in environment of expectations for recovery of the foreign demand in 2014 and positive effect of the activity of the new facilities • Moderate increase in the importpressures in 2013 and 2014, stimulated by both the export and domestic demand • Increase in the domestic demandin 2013, expecting its intensification in 2014, mostly due to the announced foreign direct and public investments and favorable movements on the labor market

9. Macroeconomic projections for 2013 -2014 balance of payments’ current account • Slight deepening of the current account deficit in 2013 and more evident deepening in 2014 • Decrease in the trade deficit in 2013, and its widening in 2014, given more evident import pressures by the investment demand • Private transfers stabilization and fall in their share in GDP

10. Macroeconomic projections for 2013 -2014 capital inflows • Expectations for gradual increase in the foreign direct investments in 2013 and 2014 • Similar level of net capital flows in 2013 and their increase in 2014, retaining the dominant share of the foreign direct investments and external borrowing of the Government in their structure • In 2013 and 2014, increase in the foreign reserves is expected, and their maintenance near the adequate level

11. Macroeconomic projections for 2013 -2014 inflation • Downward revision of the projected inflation for 2013 (from 3.2% to 2.8%) and assessment for its stabilization in 2014 (2.3%) • Absence of demand pressures given negative production gap until the second half of 2014 • The world oil and food prices move downwards during the current and the following year • Anticipated increase in the regulated prices in the domestic economy in 2013

12. Macroeconomic projections for 2013 -2014credit growth • Expectations for moderate credit growth acceleration similar to the January projection, given further increase in the deposits and available foreign sources of funding • However, the uncertain global ambient, the banks risk perceptions and the business strategies of the European banking groups also present on the domestic market, can reflect on the credit policy of the domestic banking sector through higher prudence • The banking system continue registering high capital adequacy ratio (17.1% at the end of 2012), high liquidity and moderate increase in the nonperforming placements of the nonfinancial entities (11.9% at the end of February 2013 )

13. Comparison with the previous projection

14. Summary • Moderate increase in the economic activity during this and the following year, triggered by the higher investment activity and the anticipated recovery of the exports, additionally supported in 2014 by the higher positive effect of the private consumption • Downward revision of the projected inflation for 2013 and maintenance of the January expectations for deceleration of the inflationary pressures in 2014 • Moderate widening of the current account deficit in 2014, partly driven by the increase in the import of investments • The capital inflows in 2013 and 2014, sufficient for covering the current account deficit and additional accumulation of the foreign reserves • Sensitivity to the scenario of possible changes in the global economic environment