EBRD lifts Bulgaria's 2022 GDP growth f'cast to 3%, halves 2023 projection

The European lender, however, reduced by half, to 1.5%, its forecast for Bulgaria's GDP growth in 2023, citing rising inflationary pressures and political upheaval, according to the September edition of the bank's Regional Economic Prospects report.

The latest forecast for Bulgaria's economic expansion in 2022 is lower than the aggregate expected growth of 5%, a 2.4% increase in the forecast since May, for the EBRD's Southeastern EU region which also includes Greece and Romania. The region's economic growth is expected at just 2.0% in 2023, below the 3.2% projection made in May.

Bulgaria's economy grew by 4.2% in 2021 and expanded by an annual 4.5% in the first half of this year. This short-term growth momentum was due to strong accumulation of inventories, private and government consumption, before an inflation-driven downturn, the EBRD noted.

"Investment declined sharply in the second quarter, as firms confront increased uncertainty, and was 14% below pre-pandemic levels. Nevertheless, industrial production increased by almost 17% year-on-year in the first half of 2022, as manufacturing remained resilient in spite of the Russian gas shutdown since April 2022," the EBRD said.

Accelerating inflation, which is denting consumer confidence, natural gas supply issues and pervading political uncertainty will spell a deterioration in the country's economic growth next year, according to the bank.

Bulgaria's inflation quickened to 17.7% year-on-year in August, from 17.3% in July. On October 2 the country is facing its fourth general election in 18 months.

In dealing with soaring energy and food prices, Bulgaria has followed the example of emerging markets in the EBRD's regions and favoured the introduction of price controls rather than the advanced economies' strategy of taxing energy companies' windfall profits or introducing one-off vouchers to help poorer households.

Currently, Bulgarian businesses benefit from full state compensation of energy bills above a ceiling of 250 levs ($122.18/127.82 euro) per MWh. Bulgaria's 2022 budget revision eliminated excise duty on electricity, liquefied natural gas (LNG) and natural gas, reduced the value-added tax (VAT) rate on natural gas deliveries to 9%, and introduced a 0.25 lev per litre subsidy on retail prices of petrol, diesel and fuel gas.

Bulgaria expects budget deficit to reach 4.1% of the planned GDP this year, caretaker finance minister Rossitza Velkova said last month. Real economic growth is projected at 2.2% in 2023, down from 2.9% in 2022, before accelerating to 3.4% in 2024.

(1 euro = 1.95583 levs)