EC downgraded Bulgaria’s GDP growth forecast for 2024

16.11.2023 Source: EC; FFBH

In its Autumn forecast, the European Commission (EC) made a downward revision of its expectations for the Bulgarian economy in 2024. The real GDP is expected to grow by 1.8% compared to 2.4% forecasted in the Spring report as a result of the projected decrease in household spending, affected by retail interest rates. Going forward, private consumption is forecasted to expand at a moderate pace, in line with the lower wage increases. The EC noted that exports could rebound by 4.0% in 2024, reflecting the recovery in external markets. The economic growth will be supported also by gross fixed capital formation with 4.0% growth in 2024 and 3.3% in 2025, driven by public investment funded by RRF projects. Concerning inflation, the numbers are expected to decelerate less sharply over the forecast horizon, given the diminishing base effects from 2022. In particular, annual inflation is projected to come from 8.8% in 2023 down to 4.0% in 2024 and 2.9% in 2025. A pick-up in GDP growth of 2.6% is expected in 2025, given the strong public investment growth of 5.1% and robust fixed capital formation. However, net exports could contribute negatively with exports growing by 2.6% and imports by 3.4%. The main risks in the macro forecast are related to the tighter labor market, combined with a slower pass-through of the tightened monetary conditions abroad. On the other hand, delays in absorbing EU funds and implementing the RRP would bring about more subdued growth prospects. The EC highlighted that the government debt could increase from 22.6% in 2022 up to 26.1% by 2026. Overall, risks to the fiscal outlook of Bulgaria are tilted to the downside, as recent permanent increases in wages and pensions remain to be fully compensated beyond 2023.