site.btaBulgaria Expected to Meet Price Stability Criterion for Joining Euro Area in January, Maintain It throughout 2025 - Central Bank Forecast

Bulgaria is expected to meet the price stability criterion for joining the euro area in January 2025 and maintain it throughout the year, according to the latest Macroeconomic Forecast released by the Bulgarian National Bank (BNB) on Wednesday. The forecast is based on data as of January 15, 2025.

From December 2023 to December 2024, Bulgaria saw a steady decline in average annual inflation, with the pace of this decline exceeding that of the price stability criterion. As of December 2024, the price stability criterion for all EU Member States, including Bulgaria, stood at 2.4%. Bulgaria’s average annual inflation was 2.60%, exceeding the criterion by 0.13 percentage points, the BNB said.

The central bank has revised its inflation forecast for 2025, expecting average annual inflation to reach 3.3%, up from the forecast in November 2024. There is a very high degree of uncertainty regarding this forecast, particularly concerning the deviation of Bulgaria's average annual inflation from the price stability criterion, BNB added.

Bulgaria's real gross domestic product (GDP) is expected to grow by 2.3% in 2024, an upward revision of 0.1 percentage point compared to the November forecast. This growth is mainly driven by increased final consumption expenditure and positive contributions from inventories. Fixed investment and net exports are expected to have a negative impact on economic activity.

Real GDP growth is projected to go up to 2.5 % in 2025 (a downward revision of 0.2 percentage point) and up to 3 % in 2026 (a downward revision of 0.4 percentage point). This growth is expected to be driven mainly by a shift from a decline in investment and exports in 2024 to growth in these areas over the rest of the projection horizon.

Annual inflation, as measured by the Harmonized Index of Consumer Prices, is projected to increase to 3.5 % at the end of 2025, an upward revision of 0.1 percentage point from the previous forecast. This represents an increase from 2.1% at the end of 2024. Annual average inflation is also expected to rise to 3.3 %, up from 2.6 % in 2024.

Food and goods and services with administratively controlled prices and tobacco products are expected to make the largest positive contribution to headline inflation by the end of 2025.

Annual inflation is forecast to slow to 2.1 % by late 2026, a downward revision of 0.3 percentage point. This decline will be mainly driven by food and goods and services with administratively controlled prices, while services inflation is expected to remain close to 2024 levels, the BNB said.

The BNB expects a slight decline in interest rates on both new term deposits and new household loans by the beginning of 2026. Interest rates are expected to stay near the levels projected for early 2026 throughout the rest of the forecast period. 

The annual growth in non-government sector deposits is projected to remain relatively high, while following a decelerating trend over the forecast period due to expected weaker wage growth. The annual growth in deposits is expected to reach 9.1 % by the end of 2025, decelerating to 7.7 % by the end of 2026.

Annual credit growth in the non-government sector is also expected to follow a decelerating trend, reaching 11.7 % by the end of 2025 and 9.8 % by the end of 2026. This trend aligns with the projected slowdown in private consumption growth, house prices, private investment, and corporate overdraft growth from the high levels recorded at the end of 2024, the BNB said.