The EC's autumn forecast for Bulgaria: slow economic growth and high inflation

After a strong first half of 2022, the EU economy has now entered a phase of much greater challenges. The shocks unleashed by Russia's war of aggression against Ukraine are affecting the entire world and raising global inflationary pressures. The EU is among the most exposed advanced economies due to its geographical proximity to the war and heavy dependence on gas imports from Russia, the European Commission warned in its autumn forecasts published on the institution's website today.

The overall assessment for the EU states that the energy crisis is eroding household purchasing power and straining production. Economic sentiment has fallen significantly. As a result, although growth in 2022 is expected to be better than previously forecast, the outlook for 2023 is significantly weaker for growth and higher for inflation than in the summer interim forecast of European Commission.

For Bulgaria, the EC predicts:

The growth of the native economy will reach only 3.1 percent in 2022, and will slow down even more - to 1.1 percent, in the middle year of 2023. In 2021, the economy of our country grew by 7.6 percent after shrinking by 4 percent in the pandemic year 2020.

Compared to the EC's summer forecasts, published in mid-July, expectations for Bulgaria have improved for the current year (a growth of 2.8 percent was expected in the summer), but the prospects for 2023 have worsened (with a growth of 2.3 in the summer forecasts).

Inflation forecasts

in the country they point to a rate of 12.8 percent for 2022 and a slowdown to 7.4 percent next year, followed by 3.2 percent in 2024. Inflation expectations have relatively little changed, albeit in the direction of increase, compared to the summer forecasts (respectively 12.5 percent and 6.8 percent for this year and next year).

Unemployment in Bulgaria

will remain stable, maintaining a level of 5.2 percent in 2022 and 2023 and with a minimal increase to 5.3 percent in 2024 with employment growth of 0.4 percent, 0.0 percent and 0.2 per cent over the three years covered by the autumn forecasts.

For comparison:

The baseline scenario in the forecast of the Bulgarian National Bank (BNB), prepared as of September 30, 2022, envisages lower real GDP growth in Bulgaria - a slowdown to 2.8 percent in 2022 and to 0.1 percent in 2023, followed by an acceleration to 3.4 percent in 2024. BNB predicts inflation of 14.9 percent at the end of 2022, 7.6 percent next year and a decline to 3.4 percent at the end of 2024. The unemployment rate is expected to decrease smoothly from 4.6 percent in 2022 to 4.2 percent in 2024, BTA recalls.

In its autumn forecast, the Ministry of Finance foresees a slowdown in GDP growth to 2.9% in 2022, a decline to 1.6% in the following year and an increase to 3.4% in 2024. The MoF expects inflation of 13.2% this year, falling to 3.8% next year and to 3.2% in 2024. At the same time, unemployment will be 4.6% in 2022, 4.5% next year and 4.3% in 2024.

The other macroeconomic indicators

In its autumn forecast, the European Commission expects a budget deficit of 3.4 percent of GDP this year, which will decrease to 2.8 percent and 2.5 percent in the next two years, respectively.

Government debt is projected to decline slightly to 22.5 percent of GDP this year and gradually increase to levels of 23.6 percent and 25.6 percent in 2023 and 2024, respectively. The country's government debt last year was 23 .9 percent and 24.5 percent in the pandemic year 2020.

For the current account balance, Brussels forecasts a deficit of 1.2 percent this year, with the negative balance increasing to 3 percent and 3.2 percent in the next two years.

The forecast for total investments in 2022 is also negative - minus 8 percent, but with a positive balance of 5.5 percent and 7 percent in 2023 and 2024, respectively.

What are the expectations for the European Union?

Despite the negative effects of Russia's war against Ukraine, the European Commission expects the momentum gained in 2021 and the good first half of the current year to boost real gross domestic product (GDP) growth for the whole of 2022 to 3.3 percent for the EU and 3.2 percent for the Eurozone. This is an increase from the summer forecast published in July, when growth of 2.7 percent was expected.

For next year, however, expectations are for a strong slowdown to only 0.3 percent for both regions, followed by an acceleration to 1.6 percent in the EU and 1.5 percent in the Eurozone in 2024.

Inflation is forecast by the European Commission to peak at 9.3 per cent in the EU and 8.5 per cent in the euro area this year, easing slightly but remaining high at 7 per cent and 6.1 per cent respectively in 2023, before rebounding to a moderate rate of 3 percent and 2.6 percent in 2024, respectively. Summer forecasts have been revised upward by nearly one percentage point for 2022 and more than two points for 2023. The revision mainly reflects higher wholesale gas and electricity prices, which are putting pressure on the market value of retail electricity, as well as on the prices of most goods and services in the consumer basket.

Despite the challenging environment, the labor market remains strong, with employment and labor market participation at their highest levels and unemployment at its lowest levels in decades.

Unemployment in the EU is forecast at levels of 6.2 percent in 2022, 6.5 percent in 2023 and 6.4 percent in 2024.