site.btaUniCredit Bulbank Improves Forecast for Bulgaria's 2023 Real Growth to 1.3%

In its latest economic report, UniCredit Bulbank has improved its forecast for Bulgaria's real growth in 2023, raising it by 0.8 percentage points to 1.3%.

The improved forecast is the result of a weaker-than-expected slowdown in exports and slightly lower inflation. The slower-than-expected September pass-through of the euro area's increased cost of credit to the Bulgarian economy is another reasons for the improved growth forecast. 

The extension of the generous support scheme for business users of electricity is expected to have a positive effect on companies' hiring plans, supporting incomes and economic growth in the short term. 

The Bank's economists forecast real GDP growth to accelerate to 3.3%, largely due to weakening inflation, an end to the period of deteriorating trade environment, and some reduction in global interest rates relative to levels expected to be reached in advanced economies in 2023. 

The immediate outlook for the economy over the next few months in the country, however, remains unfavourable. The Bank economists expect high inflation to weigh on demand, dampening growth and pushing the economy into a shallow and short-lived recession this winter.

Bulgaria has seen less deterioration in the terms of trade than most EU countries, as commodities and low-processed intermediate goods dominate the export structure. The result has been a smaller worsening in the country's trade deficit than that seen in most other EU countries. This trend will remain an important factor supporting the growth of the Bulgarian economy in 2023, the Bank said.

Economists expect that the Ukraine war will continue to constrain the role of both Ukraine and Russia in a large number of global supply chains, keeping the chances of a strong performance in some sectors of the Bulgarian economy, such as food and electricity production, along with maintaining high volumes in the production of munitions. This will have a positive effect on employment and incomes in the country - and consequently on consumption and economic growth in 2023.  

Interest rates on BGN-denominated loans to firms and households have been rising very slowly, despite the ECB's base rate hike last year. The slow pass-through of higher euro area interest rates to the country's BGN-denominated loans will prevent a dramatic contraction in growth in the winter of 2023.

The bank's economists expect a high level of continuity in government economic policy, with euro adoption remaining a high priority and the country likely to carry through the euro changeover in early 2024.