May 10 (SeeNews) - The European Bank for Reconstruction and Development (EBRD) said on Tuesday it expects Bulgaria's economy to expand by 2.5% this year, down 0.3% on the previous forecast made in March, as the ongoing war in Ukraine is seen to exacerbate inflation and cause greater economic slowdown.
In 2023, Bulgaria's gross domestic product (GDP) is projected to grow by 3.0%, or 0.6 percentage points (pp) down on the March estimate, the EBRD said in the May edition of its Regional Economic Prospects report.
"Industrial production recovered strongly in 2021, but the war on Ukraine poses risks for robust growth, given the country’s significant import dependency on Russia (almost 10% of GDP in 2020)," the EBRD noted. Elevated inflation is expected to be another key channel of war disruption, as Bulgarian consumers will be relatively more affected than those in other EU member states by higher food and energy prices, given low average income levels.
The latest forecast for Bulgaria is slightly lower than the overall expected growth of 2.6% for the EBRD's Southeastern EU region, which also comprises Greece and Romania. The region's GDP as a whole is seen to add 3.2% in 2023.
EBRD's latest estimates are pinpointed by expectations of a significantly lower growth rate for Ukraine than was forecast soon after the start of the Russian invasion in late February.
With many economies in the EBRD-monitored regions highly dependent on Russian gas, further disruption of supplies could be even more detrimental to industrial output. Russia's Gazprom halted gas deliveries to Bulgaria and Poland in late April over the two countries' refusal to pay for the fuel in rubles.
"Only last November we were predicting growth of 3.8% across our regions for this year. But at the time we described last year’s recovery and its momentum into 2022 as bitter sweet, tainted by worries over high commodity prices. The situation now is more concerning still, with new rises in food and energy prices, driven by Russia’s war on Ukraine, further stoking inflation," EBRD chief economist Beata Javorcik said.
A potential expansion of the scale of the war as well as possible suspensions of Russian gas deliveries to other countries make any forecasts for 2022 and 2023 subject to major downside risks, the bank cautioned.
Bulgaria's economy grew by 4.2% in 2021, data in the EBRD report shows.