Bulgaria’s Economic Outlook for 2025: Slower Growth, Moderate Wage Increase, and Controlled Inflation

According to the European Commission's Spring 2025 Economic Forecast, Bulgaria’s economy is projected to grow at a slower pace, with GDP expected to rise by 2% in 2025, down from 2.8% in 2024. By 2026, a slight increase to 2.1% is anticipated, influenced by both domestic and external factors. Private consumption will likely see more modest growth due to higher inflation and increased savings, while export expectations have been revised downward amid weaker external demand and intensified market competition. Public investment, however, is expected to receive a boost from increased EU fund absorption, even as private investment is projected to decline.

In 2024, economic expansion was primarily driven by robust private consumption, spurred by rising wages, employment gains, and social transfers. However, the war in Ukraine led to a sharp drop in exports to Ukraine and Russia, with nominal exports falling by about a third. Reduced demand for Bulgarian goods in China and the UK further impacted the export sector. Additionally, investment contracted by 1.1% due to lower public spending and inventory buildup by companies.

Looking ahead to 2025, indirect tax hikes, increased energy and utility costs, and rising international tariffs are expected to weigh on the economic outlook. Private consumption growth is projected to remain moderate, constrained by persistent inflation and precautionary savings. Exports may turn positive in 2025 following a weak start but are anticipated to pick up more significantly in 2026. Sectors like steel and oil refining are likely to undergo renovation activities that could impact export volumes. Public investment, supported by EU funding, is set to increase in 2025 and accelerate further in 2026, although private investment is forecast to continue contracting amid economic uncertainty.

The labor market in 2024 remained relatively tight, with unemployment around 4%. Growth in nominal compensation per employee, which started at 13.8% in early 2024, slowed to 4% by the end of the year as companies sought to limit costs amid easing inflation. Moderate wage growth in the private sector is anticipated to persist, with limited job losses expected as firms prioritize competitiveness. In the public sector, wage growth is expected to be more pronounced in 2025, backed by increased hiring.

Inflation, which had slowed to 2.6% in 2024, is projected to rise temporarily in early 2025 due to higher VAT rates on bread and restaurants, increased tobacco excise duties, and elevated utility costs. Food prices are also expected to climb, but inflation is predicted to decelerate throughout 2025 and 2026, aligning with international trends. Retail energy and non-energy goods prices may see further declines, contributing to overall deflationary pressures in the services sector. The Harmonized Index of Consumer Prices (HICP) inflation rate is forecast to average 3.6% in 2025, easing to 1.8% in 2026.

In 2024, the general government deficit rose to 3% of GDP, driven in part by the continued rise in pensions, wages, and social benefits, as well as the one-off statistical reporting of settled road infrastructure liabilities from 2020-21. The deficit is projected to decrease to 2.8% in 2025, supported by measures such as the reinstatement of standard VAT rates for bread and restaurant services, increased tobacco excise duties, and the implementation of stricter anti-tax evasion policies. Public sector wage growth and heightened social spending, particularly in defense, are also expected to influence fiscal dynamics. The deficit is forecast to remain at 2.8% of GDP in 2026, with the government debt-to-GDP ratio rising to 25.1% in 2025 and 27.1% in 2026.