site.btaBulgaria in EC Spring European Economic Forecast: Lower Growth, Price Pressure, Wage and Labour Demand Stagnation
The European Economic Forecast of the European Commission for the spring of 2022 has for Bulgaria lower growth amid price pressure, shrinking investment and stagnation of labour demand as businesses are trying to cope with the increasing costs.
Here are the highlights of the Bulgaria forecast:
GDP growth is expected to slow down to 2.1% in 2022, due to a slower expansion in domestic and external demand, and grow by 3.1% in 2023. Businesses are expected to respond to the cost-push shock by restricting nominal wage growth and postponing new hiring and investment decisions. On aggregate, firms’ reactions are forecast to lead to lower investment activity.
Private consumption growth is expected to slow down to 2.8% in 2022 and increase slightly to 3% in 2023. The 2022 slowdown in consumer spending is linked to expected strong price increases that are set to erode real disposable income.
Russia’s war against Ukraine and the sanctions on the Russian economy pose additional challenges for the production sector through the trade channel. The direct exposure of Bulgarian goods exports to Russia and Ukraine is relatively limited, at 1.3% for each country in 2021. Nevertheless, the overall negative effect of the war on external demand is set to limit export dynamics.
The discontinuation of natural gas supplies by Gazprom in late April is expected to be compensated through alternative sources, leading to a one-off increase in gas prices.
The decreased hiring intensity is expected to lead to a stabilisation of unemployment rates at slightly below 5%. The labour market situation is set to improve the bargaining position of employers.
People fleeing the war in Ukraine are not expected to immediately integrate in the labour market, notably in the context of the decreased hiring intensity. They are, however, expected to increase demand for goods, services and accommodation.
Consumer price inflation is expected to reach 11.9% in 2022 and then to decrease to 5% in 2023. Energy price inflation is projected to gain momentum until mid-2022 and then gradually abate and turn negative in 2023. High annual food inflation in 2022 is driven by the strong increase in the first three months of the year and the expected dynamics of international food commodity and energy prices. Services inflation is driven by cost-push shocks in the transport and catering services. Higher prices of non-energy industrial goods are set to increase via cost pressures and higher prices of imported goods.
The general government budget deficit is forecast to improve only slightly in 2022, reaching 3.7% of GDP, from 4.1% in 2021. While the costs of most pandemic support measures are gradually falling from 4.3% of GDP in 2021 to 1.8% of GDP in 2022, new measures in response to high energy prices and Russia’s military aggression against Ukraine are preventing a stronger recovery of the government balance. However, the deficit is on track to further fall to 2.4% in 2023.
Bulgaria’s general government debt ratio is set to marginally increase to 25.3% of GDP in 2022 with a further increase to 25.6% of GDP in 2023.
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