Bulgaria overview

After expanding by 3.4 per cent in 2022, the Bulgarian economy is cooling down amid weaker external demand and an inflation-caused consumption deceleration. In the first two quarters of 2023, GDP grew by 2.1 per cent and 1.8 per cent year on year, respectively, with private consumption growth decelerating to 1.3 per cent year on year in the second quarter. Moreover, exports recorded a year on year decline of 0.8 per cent as raw materials and energy exports slumped in the first months of 2023 after a strong outturn in 2022. This was caused by the fall of coal and nuclear electricity production and moderation of market prices, rendering Bulgarian electricity less competitive. The decline in exports is also 29 reflected in the decline of manufacturing since March 2023. The effect of the export contraction on GDP was outweighed by a 6.7 per cent decline in imports. On a positive note, investment has been on a recovery path after three years of underwhelming performance. GDP growth for the year as a whole is expected at 1.6 per cent, as the effect of weaker consumption may be offset by greater investor confidence on account of the newly formed coalition government paving the way to improved political stability. Notwithstanding the planned fiscal consolidation and lower government spending, EU funds could further support investment. In 2024, growth is forecast to pick up to 2.6 per cent, supported by moderating inflation, accelerating EU funds absorption, and stronger foreign demand. Key downside risks to the forecast are another energy price shock and protracted weakness in key trading partners, while political risks remain elevated.