Bulgaria to Meet Eurozone's Final Price Stability Requirement This Month
Finance | January 29, 2025, Wednesday // 13:00| views
Bulgaria is projected to meet the convergence criterion for price stability in January 2025, with expectations to continue achieving this for the rest of the year, according to the latest assessment by the Bulgarian National Bank (BNB). The forecast, based on current inflation projections in Bulgaria and the European Commission’s inflation outlook for other EU member states, suggests that Bulgaria's inflation rate will average 3.3% in 2025. Key contributors to inflation are expected to be food, goods and services with administratively determined prices, tobacco products, and the services sector.
In terms of economic growth, Bulgaria’s real GDP is expected to accelerate to 2.5% in 2025, building on a projected 2.3% growth in 2024. This growth is driven primarily by a shift from a decline in investment and exports in 2024 to growth in the subsequent years. The BNB has revised its GDP growth forecast slightly upward for 2024 but lowered it for the next two years due to anticipated weaker performance in private consumption, fixed capital investment, and exports of goods.
The forecast for inflation at the end of 2025 has been adjusted upwards, with an expected acceleration to 3.5%, compared to 2.1% at the end of 2024. The main contributors to this inflation are expected to be food prices, administratively determined goods and services, and tobacco products, alongside strong consumer demand and rising labor costs, which are anticipated to maintain inflationary pressure in the medium term. By 2026, inflation is expected to slow to 2.1%, largely due to a decline in food prices and administratively determined costs, although inflation in services will remain stable.
Private consumption is anticipated to be the main driver of GDP growth from 2024 to 2026, with increasing employment and real disposable income contributing positively. The BNB also foresees a higher growth rate in private consumption than previously expected, supporting the overall economic expansion.
Despite these positive outlooks, the risks to real GDP growth are considered balanced for 2024, but there are concerns for 2025 and 2026, with potential lower-than-expected growth due to ongoing global geopolitical tensions and structural issues within some of Bulgaria's main trading partners. Internal risks are linked to slower-than-anticipated implementation of investment projects, which could dampen economic activity.
Regarding inflation risks, there are concerns about higher-than-expected growth in consumer prices, stemming from potentially higher international energy prices, stronger-than-expected increases in administratively controlled prices in Bulgaria, and the transmission of rising labor costs to final prices. However, the risks to inflation could be mitigated if state measures affecting consumer prices are adjusted.
In terms of external factors, the growth of demand for Bulgarian goods and services is expected to be lower than initially forecast due to a deteriorating economic outlook in key trading partners within the euro area. External demand is expected to increase by just 1.3% in 2024, followed by a modest acceleration to 2.9% in 2025 and 3.4% in 2026. As for commodity prices, oil prices are expected to decline, but natural gas and electricity prices will remain higher than in 2024. Agricultural and food commodity prices are expected to increase significantly, contributing to overall inflationary pressures.
Source: Bulgarian National Bank report
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