Despite high inflation, the economic situation in Bulgaria in 2022 is positive. Exports have also risen, as have wage increases, which have offset rising consumer prices.
The downward trend in fixed capital investment that started in 2021 is maintained in 2022. Rising prices of investment goods likely constrained new investment.
Overall, real GDP is projected to increase by 3.9% in 2022. Growth of 1.4% is expected for the current year and 2.5% for 2024.
A slowdown in household consumption growth is reported in the first half of the year due to the increased inflation rate. However, the second half of last year recorded a strengthening of consumer demand due to continued growth in disposable income, coupled with some deceleration in monthly inflation dynamics.
Inflation is projected to decline slowly over the forecast period as the increase in service prices is expected to continue. The path of the economy is expected to depend significantly on the interaction of wage and price increases.
In a contracting labour market, wages are expected to continue to grow substantially, which in turn will support household consumption.
Exports in 2022 are estimated to be based on the ability to meet the emerging supply needs caused by, among other reasons, Russia’s war against Ukraine.
Export growth is projected to slow considerably in 2023, given that the drivers for further export market share gains have largely weakened in 2022. In 2024, exports are expected to grow in line with external demand. Increased absorption of EU funds, in particular under the SGP, is also expected to support overall investment in 2023 and 2024.
Average inflation in Bulgaria in 2022 is estimated by the EC to have reached 13% year-on-year, largely driven by energy and food prices. It is expected to decline to 7.8% in 2023 due to lower energy prices, and to slow further to 4% in 2024 as food price dynamics weaken. In services prices, inflation is expected to maintain its pace over the forecast period.
The Commission’s year-end economic outlook notes that almost a year after the start of Russia’s military aggression against Ukraine, the EU economy enters 2023 in a better shape.
Favourable trends since the autumn forecast improve growth prospects for this year. Continued diversification of supply sources and a sharp fall in consumption are leading to gas storage levels above the seasonal average of recent years, and wholesale gas prices are well below pre-war levels.
In addition, the EU labour market continues to function well, with unemployment remaining at a record low of 6.1% at the end of 2022.
However, there are still risks.
Consumers and businesses continue to pay very high energy prices and core inflation continued to rise in January, further aggravating the situation for households. Economic activity and investment are also facing difficulties because of inflation.
The projected growth in the winter interim forecast for 2023 of 0.8% in the EU and 0.9% in the euro area is 0.5 and 0.6 percentage points higher, respectively, than in the autumn forecast. The growth rate for 2024 remains unchanged at 1.6% and 1.5% for the EU and the euro area respectively. By the end of the forecast period, output is expected to be almost 1% above the autumn forecast.
After peaking in 2022, inflation will decline over the forecast period.
Three consecutive months of moderate headline inflation suggest that the peak in inflation has passed, as expected in the autumn forecast. After reaching a record high of 10.6% in October, inflation has eased, with the January flash estimate falling to 8.5% in the euro area.
The decline is mainly due to declining energy inflation, while core inflation has not yet peaked.
The risks to the outlook are more balanced.
Although uncertainty surrounding the outlook remains high, risks to growth are broadly balanced. Domestic demand could turn out to be stronger than projected if recent declines in wholesale gas prices are passed through more strongly to consumer prices and consumption proves more resilient. However, a possible reversal of this decline cannot be ruled out in the context of ongoing geopolitical tensions. External demand could also turn out to be stronger following China’s opening, which could, however, fuel inflation globally.
The 2023 Winter Economic Forecast provides an update to the 2022 Autumn Economic Forecast presented on 11 November 2022, focusing on GDP and inflation dynamics in all EU Member States.
It depends crucially on the assumption that Russia’s military aggression against Ukraine will not escalate, but will continue to the same extent throughout the forecast period.
The European Commission announced a better outlook for Bulgaria’s economy in its winter economic forecast published today, compared to the expectations expressed in the extended autumn report.
The new forecast says that the country’s gross domestic product (GDP) growth in 2022 will be 3.9 per cent, up from the 3.1 per cent increase forecast in November.
For the current year, Brussels expects the economy to grow by 1.4 per cent and by 2.5 per cent in 2024. Previous estimates were for growth of 1.1 percent in 2023 and 2.4 percent in 2024, BTA reported.
“Despite high inflation, economic activity continued to expand in 2022, supported by robust export growth and increases in wages and social transfers (pensions, benefits, etc. – ed.), which offset rising consumer prices. However, private consumption growth slowed in the first half of the year as inflation gathered pace,” the Commission said.
However, consumer demand is assumed to have picked up in the second half of 2022 due to continued growth in disposable income combined with some slowdown in monthly inflation dynamics.
In a tight labour market, wages are expected to continue to grow strongly and support household consumption.