site.btaBulgaria's Inflation Rate Will Drop Further but Still Blocks Eurozone Entry, Allianz Trade Forecasts

The annual inflation will be 3.1% at the end of 2024 and 2.5% at the end of 2025, forecast analysts of the Allianz Trade company for trade credit insurance. The average annual inflation for those two years in Bulgaria is thus expected to be 2.8%. 

Manfred Stamer, Allianz Trade Senior Economist for Emerging Europe and Central Asia, commented that if the company's forecast were to come true,  Bulgaria would meet the European Central Bank's current criterion that the average inflation rate based on the harmonized index of consumer prices does not exceed 3.3%. However, there is still little likelihood of Bulgaria making it into the eurozone, because the inflation rate required for entry will change as the inflation rate in the three Member States with the lowest inflation rate drops further as a result of the expected depreciation of energy and non-energy industrial raw materials in 2024 and 2025.

In Bulgaria, the most significant contribution to the downward trend in inflation belongs to energy and food prices as well as the calming levels of the average wage and the stabilization of import prices. However, an upward trend can be expected in the services sector due to the continuing pay rise and the expected increase of the VAT owed by restaurants.

Despite the pessimistic forecast for Bulgaria's entry in the eurozone in the near future, the Allianz Trade analysts remain optimistic about the Bulgarian economy's development in 2024 and 2025. They forecast a GDP growth by 2.1% this year and by 2.6% in 2025. The growth in private consumption may slow down, but the domestic market will remain the main driver of growth thanks to the recovery of public expenditure and the stable investment expansion. In response to the renewed external demand, imports are expected to grow steadily this and next year, following their decrease in 2023. The fiscal deficit will reach just under 3% of GDP both this and next year, compared to 1.9% in 2023, driven by pension and salary expenditure. Bulgaria's government debt will grow to around 26% of GDP by 2024, meaning Bulgaria may meet the Maastricht fiscal criteria for the euro's adoption when it comes to these indices.