site.btaEuropean Commission Expects Bulgaria's Economic Growth to Slow Down in 2023 and 2024

Bulgaria's economic growth will slow down in 2023 and 2024 and will recover in 2025, according to the last update of the European Commission's economic forecast for Bulgaria, dated November 15, 2023. The volume of imported and exported goods and services will also contract in 2023, while household spending is set to stagnate at the end of the year and in the first months of 2024, after which it will expand at a moderate pace.

The Commission expects Bulgaria's GDP to grow at 2.0% in 2023, compared to 1.5% according to the previous forecast published in May. on the back of still strong private consumption and contracting imports. Output growth is forecast to slow down to 1.8% in 2024 (down from a spring forecast of 2.4%) and then to pick up to 2.6% in 2025. In 2022, Bulgaria's GDP grew by 3.9%.

Annual inflation is set to come down to 8.8% in 2023 and then decelerate further to 4.0% in 2024 and 2.9% in 2025.

The general government deficit is projected to slightly increase to 3.0% in 2023, pushed up by the higher spending on government-adopted increases in wages and pensions in previous years. These increases will have a budgetary cost of around 4% of GDP in 2023. Their impact is mitigated, amongst others, by compensatory measures increasing tax collection and setting a 100% dividend for State-owned enterprises.  

At the same time, other developments have contributed to contain the deficit, such as the partial phasing out of the measures to moderate the impact of high energy prices, while those remaining in 2023 are fully financed by a solidarity contribution from the energy sector. As a result, the total (net) budgetary cost of energy-related measures is forecast at 0.8% of GDP for 2023, the Commission says.

It expects the general government deficit to remain at 3.0% of GDP in 2024. Tax revenue increases are set to slow down in line with the economic outlook, but some positive effect is expected from measures to support collection and from the full phasing out of the energy-related measures. 

Public investment is expected to remain broadly stable, but the expected impact on the deficit is set to be contained thanks to higher revenue from the EU, in particular the Recovery and Resilience Facility (RRF).

In 2025, the deficit is projected at 3.2% of GDP, mainly affected by the delivery of military equipment with a total temporary cost close to 0.7% of GDP. 

Gross fixed capital formation is expected to expand in the next two years, driven by public investment, including RRF-funded projects, the European Commission experts say.

The general government debt-to-GDP ratio is forecast to increase from 22.6% in 2022 to 26.1% by 2025. This ratio will grow to 23.5% and 24.3%, respectively, in 2023 and 2024.
 
The autumn forecast sets exports to rebound by the end of 2023 and grow by 4.0% in 2024 and by 2.6% in 2025, reflecting the recovery in export markets. 

Private consumption is forecast to dive to 1.4% in 2024 after expanding by 6.3% in 2023. In 2025, private consumption will grow by 2.4%.

Risks to Bulgaria's macroeconomic outlook are broadly balanced, the Commission concludes. On the one hand, a tighter labour market, combined with a slower pass-through of the tightened monetary conditions abroad to the domestic economy, poses a risk to the economy growing above potential. On the other hand, delays in absorbing EU funds and implementing the Bulgarian Recovery and Resilience Plan would bring about more subdued growth prospects.

In its latest economic forecast, published on October, the International Monetary Fund improved its projections of Bulgaria's GDP growth for 2023 to 1.7%, up by 0.3 percentage points from its previous estimate. The IMF expects the Bulgarian economy to grow by 3.2%, down from 3.5% set in April.

In September, Fitch Ratings also raised its GDP growth forecast for 2023 to 1.9% (from 1.3% expected in May). Fitch forecast GDP growth at 2.8% in 2024 and 3% in 2025.

Bulgaria's Finance Ministry sets an economic growth of 1.8% for 2023 and 3.2% for 2024.