Bulgarian National Bank’s Economic Forecast for 2024
The Bulgarian National Bank’s forecast for key macroeconomic indicators has been prepared as of June 26, 2024. It is based on assumptions about the development of global economic activity, the dynamics of prices for basic commodity groups on international markets, and the interest rates on the money market in the euro area as of June 6, 2024. You can read the full text of the analysis published today here.
According to the technical assumptions, the growth of external demand for Bulgarian goods and services in 2024 is expected to be lower compared to what was initially projected in the macroeconomic forecast.
Market Expectations for Energy and Non-Energy Commodities
In March 2024, market expectations suggest that external demand will increase by 1.6% in 2024, followed by a faster growth of 3.5% in 2025 and 2026. Despite predictions of a decrease in annual euro prices for energy commodities on international markets throughout the forecast horizon, prices for non-energy commodities are expected to rise by approximately 2.5% in 2024 due to expected increases in prices for non-energy commodities during the same period.
Expectations for the Eurozone Economy
Market participants are expecting a continuous decrease in short-term interest rates in the Eurozone throughout the forecast horizon. The real GDP growth in Bulgaria is expected to rise to 2.1% in 2024, driven by positive contributions from domestic demand.
Internal demand is projected to be mainly supported by the increase in private consumption, amidst rising interest rates. The net exports and inventory changes are expected to have a negative impact on the GDP growth in the coming years.
Factors influencing economic growth
Income from labor and higher government consumption are the main factors contributing to the acceleration of real GDP growth compared to the previous year. The expected contraction of the highly negative contribution of inventories observed in 2023 has a significant impact on boosting real GDP growth. The dynamics of net exports reflect the forecasted higher growth in imports compared to exports of goods and services. We predict that real GDP growth will accelerate to 3.2% in 2025 and then slow down to 2.9% in 2026, with this trend largely determined by the initial conditions and policies in place.
Forecast for Annual Inflation Rates
The forecast for the annual inflation rate is expected to slow down to 2.2% by the end of 2024, with the average annual inflation rate projected to rise to 2.5%. The main factors contributing to the slowdown in inflation are mainly related to base effects from significant price increases in 2023 in basic components and food products, as well as the decrease in energy prices due to the lowering of oil prices on international markets.
Factors Influencing Inflation Rates
The factors that will continue to contribute to the slowdown in inflation include the base effects of the significant price increases in 2023, particularly in basic components and food products. Additionally, the decrease in energy prices due to the drop in oil prices on the international markets will also play a role in keeping inflation rates low. Overall, these factors are expected to have a significant impact on the inflation rates in the coming years.
Forecasted Increase in Prices
Forecasts indicate that pressure to increase prices will persist in the short and medium term, with high growth rates expected for labor costs per unit of production and private consumption. As a result, it is expected that the basic components will make the highest positive contribution to overall inflation during the period 2024-2026, followed by food products. We anticipate that the rate of increase in the Harmonized Index of Consumer Prices (HICP) will rise to 2.8% by the end of 2025 (with an average annual inflation of 2.7%) and then slow down.
аряне на инфлацията, се очаква да бъде поддържана на умерено ниво през следващите години, благодарение на стабилната икономическа среда.
Forecasts for Economic Growth
According to the latest projections, the real GDP growth rate is expected to reach 2.6% by the end of 2026, with an average annual inflation rate of 2.7%. The risks to the forecast for real GDP growth are considered balanced for 2024, while for 2025 and 2026, there are prevailing risks of achieving lower growth compared to the baseline scenario due to ongoing global geopolitical conflicts. Additionally, there are significant internal risks for slower implementation of investment projects, funded both by national funds and EU funds. In terms of inflation, it is expected to be maintained at a moderate level in the coming years, thanks to the stable economic environment.
Challenges in Inflation Forecast
Risks are prevailing for a higher-than-forecasted increase in consumer prices over the entire forecast horizon. These risks stem from the potential realization of higher international prices for both energy and non-energy commodities than those assumed in the technical assumptions.
An assumption for higher inflation than forecasted is the possible slower and limited transmission of assumed reductions in international energy prices to final consumer prices in conditions of strong…
Challenges of Inflation for Businesses
Consumer demand and the rising cost of labor are two key factors that can contribute to higher than expected inflation rates for businesses. When consumer demand outstrips supply, companies may struggle to keep up with production, leading to price increases to balance the market.
Additionally, the increasing cost of labor can put pressure on businesses to raise prices in order to maintain profit margins. This can be particularly challenging for small businesses with limited resources.
Another risk of higher than forecasted inflation is the potential for larger-than-expected increases in administratively determined prices. This can further squeeze businesses, especially those operating in regulated industries where price controls may be in place.
