Challenges Ahead for Bulgarian Economy
Amidst ongoing political turmoil and the possibility of early elections, the Bulgarian economy is largely running on autopilot. This is highlighted in the macroanalysis for Bulgaria by ING Think – the economic arm of the Dutch bank with a presence in the country. Despite these and other arguments, they have lowered their forecast for Bulgaria’s GDP growth from 2.9% in March to 2.6% for this year, while maintaining expectations for a 3.3% economic expansion next year. However, this forecast remains more optimistic than those of the Bulgarian National Bank (2.1%) and the European Central Bank.
The Outlook for Bulgaria’s Eurozone Membership
Economists at ING Bank have revised their forecast for Bulgaria’s entry into the Eurozone to January 1, 2026. Despite meeting almost all criteria, it is unlikely that Bulgaria will join the Eurozone without a stable government. Experts at ING predict that our country’s acceptance into the currency union is likely to occur on January 1, 2026.”
Growth and Decline Sectors
ING Bank’s bellwether sector expects private consumption to continue to grow this year against the background of ongoing economic challenges.
The Outlook for Bulgarian Export Amidst Wage Growth
Economists are feeling a bit more optimistic about the prospects for growth in the eurozone, which bodes well for exports. However, the overall forecast for Bulgarian exports is bleak – only Romania’s economy is expected to accelerate this year among Bulgaria’s largest trading partners. Our view is that it will take time for the German economy to regain momentum, which will weigh on Bulgaria’s external sector, while the impact of domestic demand on imports will remain stable.
Strong Tourism Growth Expected to Boost Bulgarian Economy
Economists at ING are predicting a strong contribution from tourism to the Bulgarian economy. Double-digit growth in visitors from Romania, Greece, and Turkey (the most important markets) is a good sign for the industry. Expectations are that strong income growth in Romania will stimulate revenues for Bulgarian resorts, while stagnation in the European economy may direct more Western tourists towards cheaper vacation alternatives like Bulgaria.
Positive Outlook for the Budget
The economists at the bank view the accepted investment plan as a positive move.
Government Funding Allocation for Community and National Projects
Each project is allocated funding and supervised by a specific government agency. This increased transparency is aimed at mitigating some of the negative impacts of prolonged political instability on investments and reforms at a broader level,” according to ING Think. Economists expect inflation to face slight upward pressure in the near future due to expectations of a 20% VAT return for certain goods and services such as gyms and restaurants. Current levels of inflation are…
Impact of Wage Growth on Inflation
The likely increase in wages is expected to keep inflation outside the target range until at least 2026. This could have an impact on the services sector, affecting prices and consumer spending.
Investments and Political Uncertainty
The ongoing political uncertainty is likely to weigh heavily on projects and reforms, leading to delays in the disbursement of funds for the Recovery Plan. The postponement of the liberalization of the electricity market by a year may also result in the delay of the second tranche of funding, affecting the overall economic outlook.
Decline in Foreign Direct Investments in Bulgaria
The decrease in foreign direct investments in Bulgaria to 591 million euros in January-May 2024 compared to 1.6 billion euros for the same period last year is mainly due to a decline in reinvested earnings. According to experts, part of the problem may also be related to significant legislative changes associated with the adopted regime for screening of foreign direct investments since February this year. However, regional projects in which Bulgaria participates could serve as a tailwind and partial compensation for this decline.