site.btaUniCredit Bulbank Lowers Real GDP Growth Forecast to 1.4% from 3.6% in 2022

UniCredit Bulbank lowers the real GDP growth forecast for Bulgaria to 1.4 per cent in 2022. The bank's Quarterly Macroeconomic Update from Monday noted that the conflict in Ukraine has changed the outlook for the Bulgarian economy significantly. The impact of the conflict on commodity and food prices as well as the potential aggravation of supply-chain disruptions will probably lead to a combination of very weak real GDP growth and double-digit inflation in 2022. 

The analysis forecasts Bulgaria’s economy to grow by 1.4 per cent and inflation in the country to reach 13 per cent in 2022. 

Taking into account the consequences of the economic situation, the bank's economists forecast the economy to grow by 3.5 per cent in 2023 (down from 4.3 per cent in the January forecast). 

Experts expect household demand to go down, as public wages and pensions are set to rise more slowly in 2022 compared to the election-induced increases in 2021. 

The main cause for weak household demand will be inflation. The Consumer Price Index had reached double-digits in February even before the conflict in Ukraine triggered a surge in energy and food costs. 

Private-sector wages are also likely to take a hit, as companies reassess their sales growth outlooks against the backdrop of decreasing demand and shrinking employment opportunities. In the context of very high inflation, the bank’s baseline scenario envisages real wages growth turning negative in 2022 (-3.2 per cent) for the first time since 2001.

According to the experts, the prices of some food products have risen markedly since the start of the conflict in Ukraine and energy prices are likely to remain elevated for an extended period, as supply was significantly disrupted by the sanctions imposed against Russia. 

Strong household balance sheets will cushion some of the negative impact on consumption of goods and services. Households look richer than ever thanks to rising net financial assets coupled with a surge in house prices. At the same time, households are not burdened with the same level of debt that slowed down spending in the years following the global financial crisis in 2008.

According to the data, nearly 40 per cent of the population has no access to emergency funding (savings or access to credit), which means that the so-called hand-to-mouth consumers form a significant part of the country’s consumption.

The bank’s economists expect the Bulgarian housing market to cool down after the boom in 2021, when both the number of transactions and house prices in the most desirable locations posted double-digit increases.