Real GDP growth is forecast to slow gradually over the forecast horizon, mostly due to domestic factors. Private consumption growth is set to ease, reflecting moderating wage growth. Net exports are expected to negatively contribute to growth. Food and services prices drove inflation up in 2025 but are projected to moderate gradually. The deficit is set to increase to 4.3% of GDP in 2027, driven by defence investment. The debt-to-GDP ratio increases on the back of budget deficits and stock-flow adjustments.
| Indicators | 2025 | 2026 | 2027 |
|---|---|---|---|
| GDP growth (%, yoy) | 3.0 | 2.7 | 2.1 |
| Inflation (%, yoy) | 3.5 | 2.9 | 3.7 |
| Unemployment (%) | 3.5 | 3.7 | 3.8 |
| General government balance (% of GDP) | -3.0 | -2.7 | -4.3 |
| Gross public debt (% of GDP) | 28.5 | 30.6 | 32.6 |
| Current account balance (% of GDP) | -1.8 | -1.5 | -2.0 |
GDP growth to slow down due to less buoyant domestic demand
Economic growth reached 3.4% in 2024, driven by private and public consumption. Investment accelerated in the first half of 2025, boosted by increased absorption of RRF funds. However, consumption and investment are expected to decline in the second half of 2025 due to a lower contribution from the public sector in response to lower-than-planned government revenues. In 2026 and 2027, private consumption growth is expected to moderate in line with slowing growth of wages and social transfers. Private investment is forecast to continue supporting growth as business confidence improves, in the context of the euro adoption. The acceleration of EU funds absorption that started in 2025 is expected to continue into 2027. Exports contracted in early 2025, partly due to maintenance works done by two major exporters, but growth is expected to resume in the second half of the year and continue over the forecast horizon. Imports are also expected to increase, driven by rising domestic demand, and defence spending which is set to drive up imports in late 2025 and in the course of 2027, because of planned major defence equipment. Overall, the contribution of net exports to GDP remains slightly negative until 2027. Real GDP is forecast to grow by 2.7% in 2026 and 2.1% in 2027.
Recent strong wage growth expected to slow
Nominal and real wages increased strongly in most sectors in 2024 and the first half of 2025 due to adjustments for past high inflation in 2022-23, catching up of real incomes with European peers and one-off hikes in sectors like security and defence and education. Wage growth is forecast to moderate as inflation pressures decrease and the private sector focuses on preserving competitiveness, while public wage growth is limited by fiscal constraints. The labour market remains tight, with the unemployment rate expected to drop below 4% in 2025. Employment growth reflects efforts of businesses to attract workers, especially low-skilled ones, from third countries, which could help ease wage pressures in the coming years.
Food and services keep inflation elevated
HICP inflation is expected to reach 3.5% in 2025, following an increase in VAT rates on bread and restaurant meals, higher excise duties on tobacco, and an increase of administered prices of gas, heating and electricity. In addition, food prices have surged for most of the year due to higher import prices. In 2026, inflation is expected to moderate to 2.9% as the effects of the administered price hikes fade. However, inflation in services and food is expected to remain elevated, while energy prices remain stable, in line with commodity prices. Higher food inflation is driven by both higher import prices and rising wages for domestic producers. Services prices in 2026 are also impacted by the significant wage increases over 2024-25, while the effect is expected to moderate in 2027 as wage growth slows. Inflation is forecast to rebound to 3.7% in 2027, largely driven by an increase in energy prices from the implementation of the ETS2 directive, assuming it is not delayed.
Defence spending drives the deficit above 3% in 2027
In 2025, the deficit is set to remain at 3% of GDP, due to automatic and discretionary increases in social spending and public sector salaries, particularly in sectors such as defence and internal security. As a result, expenditure growth continues to outpace revenue increases despite the efforts to improve tax collection, the reinstatement of standard VAT rates for bread and restaurant services and the positive impact of wage growth in the private sector. Public investment in 2025 is forecast to be higher than in 2024, reflecting the accelerated RRP implementation and planned defence equipment deliveries. In 2026, spending pressures from public sector wages and pensions are set to moderate and capital expenditure on defence is projected to be lower, contributing to a decrease of the deficit to 2.7%. In 2027, against the background of a second phase of planned defence equipment deliveries valued at 1.2% of GDP and in the absence of compensatory measures, the deficit is forecast to rise to 4.3%.
The general government debt-to-GDP ratio is forecast to increase from 23.8% in 2024 to 28.5% in 2025, then to 30.6% in 2026 and 32.6% in 2027. The large increase in 2025 comes from debt refinancing operations and planned capital injections into the Bulgarian Energy Holding and the Bulgarian Development Bank. The potential statistical reclassification of capital injections into deficit increasing measures and the permanent increases in public sector wages and pensions, that remain not fully compensated by higher government revenue, represent important downside risks to the budgetary balance forecast.