Bulgaria's gross domestic product is expected to grow by 2.2% this year after an increase by 1.8% in 2023, according to the new macroeconomic forecasts of the BNB, published on Tuesday. This represents a downward revision compared to the BNB's December forecast for GDP growth of 2.5% in 2024.
BNB also expects real GDP growth to accelerate in 2025 to 3.3% and then slow to 2.6% in 2026, with this dynamic largely determined by the underlying profile of public investments.
For the acceleration of real GDP growth, the main influence is the assumed transition of the contribution of the change in stocks from strongly negative in 2023 to neutral in 2024, laid down in the new forecast of the BNB.
According to the central bank, growth will be supported by domestic demand, while net exports will be negatively affected. Domestic demand is projected to be supported by an increase in private consumption amid rising real labor incomes, growth in investment activity, as well as higher government consumption.
The negative dynamics of net exports reflects the projected greater growth of imports compared to exports of goods and services. External demand for Bulgarian goods and services is expected to grow by 2.1% in 2024 and accelerate to 3.3% in 2025 and to 3.4% in 2026.
In the short term, downside risks to consumer prices stem mainly from the possibility of a larger-than-expected decline in administratively determined prices, as well as potentially stronger and faster pass-through by firms of lower prices of raw materials on international markets on final consumer prices in the country.
In the medium term, the eventual realization of faster and more frequent indexation of wages in conditions of labor shortage, stronger than expected growth in consumer demand, as well as greater than predicted price appreciation of goods and services with administratively determined prices represent risks in the direction of higher inflation compared to the base scenario, notes the BNB.
The Central Bank predicts that annual harmonized inflation in Bulgaria will slow down to 2.3% at the end of this year, and medium-term inflation will reach 3%. At the end of 2025, inflation is expected to accelerate slightly to 2.7% and remain at this level at the end of 2026. In the medium term, the BNB expects the positive contribution of core components to overall inflation to remain significant.