The EC Forecasts Inflation of nearly 12% for Bulgaria

Finance | May 16, 2022, Monday // 17:57|  views

The growth of the Bulgarian economy will slow down to 2.1% in 2022 and 3.1% in 2023. This is stated in the spring economic forecasts of the European Commission, released on Monday.

In previous forecasts published in February, the EC relied on growth of our domestic gross domestic product of 3.7% for this year and 3.9 percent for next year.

High inflation has been pushed up by energy and raw material prices, with consumer prices expected to rise 11.9 percent this year and then fall to 5 percent in 2023, according to forecasts.

In its February forecast, the European Commission expected inflation in our country to accelerate to 6.3 percent this year, and then to slow to 3.9 percent in 2023.

The country's public fiscal balance is also projected to recover slowly, reaching a deficit of 3.7 percent of GDP in 2022 and 2.4 percent of GDP in 2023.

In 2022, price pressures and the related price adjustment process are expected to weigh on household consumption, while increased uncertainty about the business environment will negatively affect private investment, according to the European Commission.

The effect of phasing out most measures to help community groups affected by the coronavirus pandemic and its aftermath is expected to be partially offset by measures introduced in response to high energy prices, aid to people fleeing the war in Ukraine and pension updates.

In 2022, GDP growth is expected to slow to 2.1 percent due to slower growth in domestic and external demand, Brussels predicts.

Given the high energy intensity of our economy, companies facing the trend of high energy and raw material prices are expected to respond to the shock caused by rising costs by limiting the growth of nominal salaries of their employees and postponing decisions on employment and investment. Overall, business response is expected to lead to lower investment activity, according to economic forecasts.

Lower levels of private investment are projected to be fully offset by public investment supported by the funds of the Mechanism for Recovery and Sustainability, recalls the European Commission.

Private consumption growth is expected to slow significantly to 2.8 percent this year and to increase slightly to 3 percent next year. The slowdown in consumer spending in 2022 is linked to the expected sharp price increases, which are expected to undermine real disposable income of households.

Russia's aggressive war against Ukraine and subsequent sanctions against the Russian economy pose additional challenges to Bulgaria's manufacturing sector, EC experts warn.

The direct exposure of Bulgarian goods to Russia and Ukraine is relatively limited - 1.3 percent for each of the two countries in 2021, recalls the European Commission.

However, the overall negative effect of the war on foreign demand is projected to limit export dynamics. The interruption of natural gas supplies to Bulgaria by Gazprom at the end of April is expected to be compensated by alternative sources, which will lead to a one-time increase in gas prices, the report said.

In 2023, GDP growth is expected to accelerate, supported by increased public investment financed by the Mechanism for Recovery and Sustainability and an improved outlook for external demand.

Reduced hiring rates are expected to stabilize unemployment levels at just under 5 percent. The labor market situation will improve the position of employers in the negotiation process with employees, leaving wages to rise below levels of rising consumer prices. People fleeing the war in Ukraine are not expected to integrate into the labor market immediately, especially in the context of reduced recruitment rates, according to the economic forecast.

However, demand for goods, services and accommodation is expected to increase.

The ratio of Bulgaria's public debt is expected to grow slightly to 25.3 percent of GDP in 2022 and with a new increase to 25.6 percent in 2023 due to the expected permanent deficits, EC experts conclude.

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Tags: EC, Bulgaria, inflation, European Commission


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