site.btaEBRD Revises Down Bulgaria's GDP Growth Forecasts for 2022-2023

Bulgaria's GDP will grow by 2.5% in 2022, the European Bank for Reconstruction and Development (EBRD) said in its May 2022 Regional Economic Prospects report published on Tuesday. The GDP growth forecast has been revised down from 2.8% in March as supply-side issues will likely persist.

In 2023, a modest recovery of 3.0% is plausible, with upside risks in case of a faster normalization of inflation and robust investment. In March, the EBRD forecast 2023 GDP growth of 3.6%.

The Bulgarian economy expanded by 4.2% in 2021, driven mainly by private consumption growth. In contrast, investment declined in 2021 by 11%, partly reflected by the decline in value added of the construction sector. 

Tourism recovered only partially in 2021, with visitor arrivals at just 57% of 2019 figures, the report said.

Industrial production recovered strongly in 2021, however, but the war on Ukraine poses risks for robust growth, given the country's significant import dependency on Russia (almost 10% of GDP in 2020), the report said.

Another key channel of war disruption is elevated inflation, as Bulgarian consumers will be relatively more affected than those in other EU countries by higher food and energy prices, given low average income levels, the EBRD said.

Inflation accelerated to 12.4% in March 2022, with food prices up by 17.4% compared with March 2021. The government has some fiscal space to adopt several short-term measures to counteract increasing prices, given low public debt levels. The government has also pledged to increase public investment, although there may be absorption capacity constraints in the short term, the EBRD experts said.

After delays in the Recovery and Resilience Plan's adoption, increased EU funds will start to have an impact on the economy from 2023 onwards.