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UniCredit affirms Bulgaria's 2024 GDP growth forecast at 2.5%

Jul 10, 2024, 3:40:29 PMArticle by Mihaela Miteva
July 10 (SeeNews) - Italy's UniCredit said it expects Bulgaria's gross domestic product (GDP) to grow by 2.5% in 2024, driven by the country's expected eurozone accession in 2025.

UniCredit affirms Bulgaria's 2024 GDP growth forecast at 2.5%
Photo: UniCredit Bulbank

"We remain optimistic about Bulgaria meeting the inflation criterion for euro adoption in the fourth quarter of 2024. Once the inflation criterion has been met, Bulgaria is likely to request a reassessment in the last quarter of 2024, which should pave the way for eurozone entry in the course of 2025," UniCredit said in the latest edition of its CEE Quarterly report published at the end of last month.

The lender projects stronger private consumption growth this year as a result of accelerated real wage growth and household credit expansion, which will be offset by weaker investment.

At the same time, the political uncertainty in the country is expected to negatively impact private sector investment and delay the implementation of structural measures needed to absorb EU funds from Bulgaria’s Recovery and Resilience Plan (RRP). The country is projected to receive three tranches from its RRP by the end of 2025, compared to the four forecast in March.

In 2025, Bulgaria's real economic growth is seen to accelerate to 3.1%, slightly below the bank's forecast of 3.2% made in March, with improved EU funds absorption and stronger external demand seen to boost exports and investment growth.

Average consumer price inflation in 2024 is now forecast at 2.9% this year, or 0.2 percentage points lower than the projection made three months earlier. The bank expects headline inflation to further slow to 2.8% on average in 2025.

On the other hand, record-high wage growth in the first quarter of 2024, which is likely to persist for most of 2024 before slowing gradually in 2025, suggests that core price inflation is set to remain sticky this year and next, UniCredit noted.

After meeting the inflation criterion for euro adoption, Bulgaria is expected to tap the Eurobond market in the last quarter of this year, with higher domestic borrowing expected this year and in 2025. UniCredit anticipates the country's domestic bond issuance to total 2.85 billion levs ($ billion/ billion euro) this year, coupled with 3.8 billion euro in external bonds.

An increase in the protest vote in the June snap elections has led to an even more fragmented parliament as pro-European parties hold a strong majority and are most likely to form Bulgaria's next government.

"Failure to end the power struggle among pro-European parties could result in a snap election later this year. In such a scenario, companies would likely take wait-and-see approach, which would negatively affect private investment. Public investment would also suffer, because the already slow utilisation of EU funds from the country’s RRP would come to a halt in the third quarter of 2024," UniCredit said.

In this case, households would become more cautious about spending, resulting in weaker consumption compared to the baseline scenario. This could all prevent real annual GDP growth from going above 2% in 2024.

(1 euro = 1.95583 levs)

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