site.btaCentral Bank Slightly Lowers Growth Forecast for Bulgaria for 2025, Also Revises Down Inflation Figures

Bulgaria's real GDP is expected to grow by 2.1% in 2024 and 3.2% in 2025, the Bulgarian National Bank (BNB) says in its Macroeconomic Forecast: June 2024, which was published on its website Friday. This latest quarterly forecast presents the central bank's expectations about Bulgaria's main macroeconomic indicators in 2024-2026.

Back in March, BNB predicted slightly higher GDP growth of 2.2% in 2024 and 3.3% in 2025.

The projection for 2026 has been revised up to 2.9% (June forecast) from 2.6% (March forecast).

The country's economic growth in 2024 is being driven by the positive contribution of domestic demand, while net exports and changes in inventories are expected to make a negative contribution, the report says.

Domestic demand is projected to be supported mainly by private consumption growth in the context of rising labour income in real terms and higher government consumption.

Private consumption is projected to grow by 4% in 2024 year on year, which is 0.4 percentage points above the March forecast. An identical rate of increase is predicted for 2025. Government consumption will expand by 2.9% in 2024 and 2.5% in 2025.

A major factor behind the acceleration in real GDP growth is the expected decline in the negative contribution of inventories as observed in 2023. GDP dynamics is largely driven by the set profile of public investment and related imports.

Net exports dynamics reflects the projected higher growth in imports of goods and services than that in exports.

The growth of external demand for Bulgarian goods and services in 2024 will be lower than projected in the March 2024 macroeconomic forecast. External demand for Bulgarian goods and services is assumed to increase by 1.6% in 2024, before accelerating to 3.5% in 2025 and 2026.

Bulgarian exports will go up by 2.3% in 2024, 3.7% in 2025 and 3.6% in 2026. Back in March, BNB's export growth projection for 2024 was higher, at 2.9%, followed by 3.6% in both 2025 and 2026.

Imports to Bulgaria are forecast to increase by 2.7% in 2024 (March forecast: 4.5%), 5.6% in 2025 (March forecast: 5.2%) and 4.5% in 2026 (March forecast: 4.6%).

BNB's inflation forecast shows that the upward pressure on prices will ease in 2024. Annual inflation is expected to slow to 2.2% by the end of 2024, and average annual inflation in 2024 will stand at 2.5%.

The growth of consumer prices in Bulgaria will fall to 2.2% in 2024, based on the harmonized index of consumer prices, and will then rise to 2.8% in 2025 before falling again to 2.6% in 2026. The respective levels in the March forecast were 2.3%, 2.7% and 2.7%.

As for core inflation, which shows price changes for services and industrial goods, BNB has revised down its March forecast by a good 1 percentage point. According to the June forecast, core inflation will fall to 2.3% in 2024. In 2025, however, it is expected to increase to 3.3% (March forecast: 3.2%), and in 2026 it will go down to 2.9%.

For food products, inflation is forecast to decrease to 3.2% in 2024, then edge up to 3.4% in 2025 and decrease again to 3.3% in 2026.

The main factors behind the moderation in inflation are mainly related to base effects from significant price hikes in core components and food groups in 2023, as well as to energy price decline as a result of the fall in international oil prices. The factors that will continue to exert upward pressure on prices in both the short and medium term remain the projected high rates of growth in unit labour costs and private consumption.

Risks to the real GDP growth forecast are assessed as balanced for 2024, while for 2025 and 2026, risks of lower growth compared to that in the baseline scenario prevail given the ongoing global geopolitical conflicts. In addition, there are significant internal risks of slower than projected implementation of investment projects financed by both national and EU funds, the central bank says.