site.bta Inflation Likely To Reach 18% By End-Year, Possible Short Recession

Inflation in Bulgaria is likely to peak at the end of the year when it will hit 18% and average inflation will be above 15%, Kristofor Pavlov, UniCredit Bulbank Chief Economist said here on Thursday. He spoke at the opening of the first 2022 Annual Construction and Investment Conference,  organized by Manager magazine.
Inflation in Bulgaria in August was 1.2% month-on-month, adding up to an annual inflation of 17.7%.

There will be inflation next year as well, because Russia and Ukraine are large producers of food and fertilizers. This will lead to significant pressure on food prices, argued Pavlov.

Bulgaria's economy will have a shallow recession at the end of this year and the beginning of next year, due to the drop in household incomes, which will reduce consumption. The recovery of the Bulgarian economy will take place in the second half of next year, together with the recovery of the European economy, he pointed out.

Inflation will be a dominant theme in the coming year as well, and it will be related to the division of Europe's economy with Russia. After the end of the Cold War, many efforts were made to intertwine the economies of Europe and Russia with the hope that this would prevent war. Unfortunately, the war in Ukraine put an end to this process and the production chains will not be restored. The US and its allies have announced that they will isolate the Russian economy. This will be a painful process of varying duration for different sectors and countries. Europe has already replaced Russian oil and its prices have begun to normalize, but that is not the case with natural gas, pointed out Kristofor Pavlov.

Oil and gas pipelines from Russia to China may take 7-8 years to build, and by then Russia has to find another buyer for its raw materials, he commented.
The economies of Eastern Europe will pay a greater price (through inflation) than the countries in Western Europe because of their proximity to Russia, the Chief Economist of UniCredit Bulbank also said.

Exports of food, ammunition and electricity will continue to be significant and will help the recession in Bulgaria to remain contained. The current strong credit growth will support Bulgaria's economy in the next few months. The government's fiscal support measures are also helpful. The electricity price subsidy program will help suppress inflation - without it, inflation at the end of the year would have been over 20%, Pavlov said.

The housing market in the country is already "cooling down" and it should come as a surprise because the growth rate of housing prices has been high in the last two years, Kristofor Pavlov pointed out. According to him, the reason for this is the increase in the cost of credit.

Housing affordability in Bulgaria continues to deteriorate, but the pace of this deterioration is lower in this country. In Western Europe, the share of mortgage loans is over 100%, while here it is less than 20%, explained Pavlov.