Bulgaria's finance ministry said it expects the country's real economy to grow by 1.8% in 2023, affirming its projection issued in spring and noting an economic slowdown in the second half of the year borne out of weaker household consumption and lower investments.
The country's economy is forecast to expand at a faster rate next year, by 3.2% real, the ministry said in its 2023 Autumn Macroeconomic Forecast, lowering its spring projection by 0.1 percentage point.
Bulgaria's gross domestic product (GDP) grew by 3.9% in 2022, the national statistical office said last month, revising the definitive data upwards from 3.4%.
Inflation under the EU Harmonised Index of Consumer Prices (HICP) is expected to be 6.9% at year-end and 9.1% in 2023 on average, slightly higher than the 8.7% average estimated in the spring forecast. The services sector will be the main contributor to inflation, coupled with a small contribution from the energy sector, where prices, especially in transport fuels, are affected by crude oil futures at the end of 2023. Another factor is the 4.4% average electricity price rise resulting from the return of the standard VAT rate for heating and natural gas. The 2022 budget had introduced a temporary reduction to 9% from 20% of the VAT on the supply of heating and natural gas.
The downward trend in consumer prices is seen to carry on in the near term, as average inflation is expected to ease to 4.8% in 2024 and continue abating in 2025 and 2026, supported by lower prices of raw materials worldwide which will in turn affect the food, services and non-energy sectors.
Expectations for employment growth in 2023 have been raised to 1.2% from 0.4% projected in spring, mostly due to the significant increase in employment in the first half of the year and the expected contribution of the services, agricultural and construction sectors. The finance ministry forecast Bulgaria's unemployment rate to inch up to 4.2% in 2023 compared to 4.1% planned in spring, with a tendency to ease slightly to 3.9% by 2026. This weak decline in the jobless rate reflects expectations that jobs will be mostly filled by attracting some of the unemployed back into the workforce or attracting labour force from abroad.
The geopolitical instability resulting from the war in Ukraine and the crisis in the Middle East could lead to significant negative effects for the economies of Bulgaria and the wider EU, the finance ministry said. These events could maintain a higher inflation rate and prompt restrictive monetary policies by major national banks, which would in turn reflect on both exports and domestic demand in Bulgaria.
Production and exports in the country could also be more negatively affected by a potential risk to the gradual transition of crude oil deliveries in Bulgaria. In September, the Bulgarian parliament voted to oblige Russian-owned refinery Lukoil Neftochim Burgas to switch to non-Russian crude by October 1, 2024.
There is a risk for a further slowdown in GDP from inventories falling further in 2024, the ministry said.
|
2023 |
2024 |
2025 |
2026 |
GDP (real % growth) |
1.8 |
3.2 |
3.0 |
3.0 |
Consumption (real % growth) |
4.1 |
3.5 |
3.3 |
3.6 |
Exports of goods, services (real % growth) |
0.5 |
4.0 |
4.1 |
3.9 |
Imports of goods, services (real % growth) |
-1.9 |
6.0 |
5.8 |
5.0 |
Unemployment rate (%) |
4.2 |
4.0 |
4.0 |
3.9 |
Current account balance (% of GDP) |
1.7 |
0.0 |
-0.8 |
-1.0 |
Annual average inflation (HICP, %) |
9.1 |
4.8 |
2.8 |
2.2 |
FDI (% of GDP) |
3.8 |
3.9 |
3.8 |
3.8 |
Source: Ministry of Finance, Bulgaria.