EU fund absorption is expected to stimulate investment, while the labour market will help strong wage growth drive private consumption, Unicredit said in the latest edition of its CEE Quarterly report released on Monday.
In 2025, Bulgaria's gross domestic product (GDP) is seen to grow by 3.3%, fuelled by a rebound in private capital expenditure and exports amid higher foreign demand, the lender said.
Private consumption will be a key driver of GDP, supported by disinflation, rising incomes and increased public transfers, including a 20% minimum wage hike and a 12% increase in average pensions. Real consumption growth, however, is expected to lose momentum this year.
Average consumer price inflation in 2024 is forecast at 4.3% against 4% projected in September, but then seen to decelerate to 3% in 2025. At the same time, the budget deficit will rise by 0.7 percentage points to 2.9% of GDP this year and further to 3% in 2025, UniCredit said. Higher sovereign funding needs in 2024 will be met through increased external borrowing and additional spending from fiscal reserves.
"Euro adoption remains a key priority that will shape policymaking in the forecast period. To this end, the government aims to achieve a budget deficit below the 3% of GDP mark and to concentrate on the reforms needed to unlock the significant volume of EU funding that Bulgaria is entitled to receive in the next several years," UniCredit noted.
Most requirements related to the second tranche of Bulgaria’s Recovery and Resolution Plan (RRP) have been implemented, with funds expected to be released in February. "Stronger progress ahead looks likely, in our view, because Bulgarian authorities say they are strongly committed to the reforms envisaged in the country’s RRP, while requirements linked to the payment of the next three tranches look somewhat less challenging to implement," the lender said.
Bulgaria's consolidated fiscal programme this year includes measures supporting economic growth, such as increased funding for pensions, healthcare and other social costs linked to the ageing population. Furthermore, a boost in capital expenditure is expected to help grow domestic demand in 2024, UniCredit said.
