site.btaUBB Upgrades its 2023 Economic Growth Forecast for Bulgaria to 1.5% from 0.7%

In 2023, Bulgaria's GDP will grow this year by 1.5% percent, according to the outlook of the United Bulgarian Bank (UBB).

GDP dynamics in the last quarter of 2022 and developments in the first three months of this year prompted the bank to revise up its  forecast for 2023 from 0.7% to 1.5%, while remaining relatively conservative.

In 2023, the bank’s economists expect annual average inflation to be 9.5%. In 2024, Bulgaria's economy will grow by 2.8% and inflation will fall to 3.5%, the forecast says.

Growth in the eurozone is expected to reach 0.8% in 2023, up from 0.4% and in Germany to be 0.4 % of minus 0.1 per cent. Moreover, the likelihood of prolonged political uncertainty in Bulgaria has fallen to around 50%, and gas and electricity prices are also falling. Rising interest rates in the country are expected, but with a time lag, which is a stimulus for the economy but also for inflation.

According to preliminary data from the National Statistical Institute, in the fourth quarter of 2022 the Bulgarian economy grew by 2.6 percent in real terms on an annual basis. By mid-year, it was this quarter (and the first of 2023) that was expected to be the most problematic - from slightly negative to around zero, due to the war in Ukraine, the disruption of gas supplies by Gazprom, galloping inflation, political instability in the country and economic activity around the recession in the eurozone and in Germany in particular. Although these preconditions are still valid, it became clear already at the end of the summer that the extent of their negative impact on the national economy will be far less than expected. Thus, Bulgaria achieved 3.4% real growth last year, which was very close to our forecast of 3.5%, the bank says.

As expected, in the fourth quarter, the economy's growth was driven by final consumption, which accelerated by 6.3% compared to the same quarter of 2021, and household consumption increased the fastest - by 6.9%. This dynamic naturally correlated with the annual increase in imports of goods and services, up by 8.5%, which, however, remained slower than that of exports, up by 9.4%  in the quarter.

Against this backdrop, gross fixed capital formation (investment) grew by 2.4% for the first time since the fourth quarter of 2020. In turn, inventories contracted for the second consecutive quarter, which was also a positive sign.

Average wages are expected to continue to rise in the fourth quarter of 2022 - by 16.2%t year-on-year. This has occurred at the rate of inflation, at 13.6% per year on average. In this respect, Bulgaria is an exception among most EU countries - there wages grew slower than inflation and therefore drove inflation to a smaller extent. Wage growth will continue but at a slower pace, UBB says.