The main upside risks to the outlook are the stronger rebound of consumption amid high wage growth and a swifter recovery in investments and goods exports, the EBRD said in the latest edition of its Regional Economic Prospects report.
"On the downside, the slow vaccination rollout could damage the tourism season this summer, and the current political difficulties could delay public investments and absorption of EU funds through the Recovery and Resilience Facility," the EBRD added.
In the previous issue of the report published in October, the EBRD projected that Bulgaria's economy would bounce back to 3.0% growth in 2021, assuming gradual normalisation of economic activity in the country and its main economic partners from late 2020 onwards.
In 2020 the Bulgarian economy contracted by 4.2% due mainly to a weak performance of exports and investment, with falls of 11.3% and 5.1%, respectively. In contrast to regional peers, private consumption did not decline in 2020, largely because of relatively milder containment measures and robust wage growth throughout the year, the EBRD noted.
Moreover, government spending notably increased in 2020 by 7.5%, through increases in minimum and public wages and support measures worth about 3% of GDP. As such, after several years of fiscal surpluses, the government balance was minus 3.4% of GDP in 2020, with a similar deficit projected also in 2021. Goods exports have been slower to recover compared with regional peers, while exports of services, including tourism, were severely affected and declined by 28.6%t in 2020.
In the first quarter of 2021 the country's economy expanded by 2.5% quarter-on-quarter. However, investment recovered only partially, while net exports had a negative contribution to growth of 5.3% as imports are growing rapidly, the EBRD said.
The GDP of the EBRD's region of Southeastern European Union, which comprises Bulgaria, Greece, and Romania, is seen growing by 5.2% in 2021 and 5.0% in 2022 as fiscal support and the prospects of major EU recovery funding in the coming years are boosting investor and consumer confidence. However, continued uncertainty around tourism weighs on the outlook. In October, EBRD said that the region's economy is expected to grow by 3.3% in 2021.
