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Economy and Finance

Economic forecast for Bulgaria

The latest macroeconomic forecast for Bulgaria. 

Indicators 2023 2024 2025
GDP growth (%. yoy) 2.0 1.9 2.5
Inflation (%. yoy) 8.6 3.4 2.9

In 2023, the Bulgarian economy is estimated to have grown by 2%, as expected in autumn. Economic activity faced weaker external demand, higher interest rates in the euro area and continued price pressures. Nevertheless, private consumption expanded, especially in the first half of 2023, supported by a strong labour market, improved consumer confidence, the decline in inflation and strong lending activity. Exports of goods contracted sizeably, weighing on the volume of industrial production and sales. Faced with lower external demand, firms cut on purchases from abroad and invested considerably less in inventories. Investment also remained subdued in the first half of the year. At the same time, firms were able to largely keep high employment levels and increase nominal wages, albeit more moderately.

Real GDP is expected to grow by 1.9% in 2024 and by 2.5% in 2025, broadly unchanged compared to the Autumn 2023 Forecast. Domestic demand is now expected to be the main growth driver. Although exports are set to rebound already in 2024, a negative carry-over effect from 2023 is weighing on the annual growth projection. Household consumption is expected to continue to grow, albeit somewhat less strongly compared to 2023, as the potential for further employment gains appears exhausted and saving rates gradually return to higher levels. These dynamics depend crucially on the expected good labour market performance and the assumption that the pass-through of relatively high foreign interest rates to the domestic credit market remains incomplete. The projected normalisation in the level of inventory accumulation is set to support domestic demand and contribute to the rebound in imports. Investment is also expected to recover, mostly driven by higher absorption of EU funds, including in the context of the implementation of Bulgaria’s Recovery and Resilience Plan.

Annual HICP inflation decelerated from 14.3% in December 2022 to 5% in December 2023. Overall, it posted 8.6% in 2023, slightly lower than projected in the 2023 Autumn Forecast. All components contributed to the disinflationary process, with food prices contributing the most. The deceleration of inflation in services was driven mostly by transport and catering services, whose prices largely depend on energy and food prices. The disinflation in food and energy prices also helped to anchor inflation expectations, avoiding to a large extent a wage-price spiral.

Annual HICP inflation is expected to decelerate markedly to 3.4% in 2024, revised down since autumn, and 2.9% in 2025, unchanged compared to the Autumn Forecast. Import prices are set to exert downward pressure on the energy, food and non-energy industrial goods components in 2024. Services price inflation is also projected to decelerate, driven by second-round effects from input prices and a projected moderation in wages.