site.btaEconomic Growth in Bulgaria Remains Steady but Convergence Lags Behind, IMF Warns

Bulgaria and other countries in the region posted steady economic growth last year, with the forecast remaining at about 3% annually for the next two years, Deputy Director of the International Monetary Fund’s European Department Helge Berger said on Friday. However, Berger noted that this is not enough to sustain convergence with Western Europe.

The region’s economy, including Bulgaria, is growing more quickly than some advanced European economies, but Berger said long-term growth is insufficient to keep up with the pace of catching up to Western European levels.

He identified two main forces shaping Bulgaria’s economic performance. On the one hand, domestic demand is very strong, linked in Bulgaria’s case to the expected adoption of the euro and falling interest rates, as well as solid fiscal policy and credit developments supporting local demand. On the other hand, Berger pointed to wage growth being “rather exuberant in many countries of the region, which presses inflation up,” and called for careful monitoring of this trend.

External demand has been weaker, as elsewhere in Europe, affecting short-term growth.

Berger set out two key concerns for Bulgaria and the wider region. The first is inflationary pressure: “If wage growth is high, inflation tends to be high, so monetary policy will need to be very careful,” Berger said, noting that in Bulgaria’s case “this will be in the good hands of the ECB as of January.” For other countries, he added, monetary policy “is an area that warrants attention.”

Berger said that fiscal policy is just as important, particularly for Bulgaria: “We need non-expansionary policies; we need policies that lower debt where it is increasing; and we need fiscal policy that does not fuel wage growth unnecessarily, that would help the macro economy.”

He also advised countries across the region to focus on their structural reform agendas domestically, while EU-level reforms and deepening the Single Market are crucial for both current and future euro area members like Bulgaria. The Capital Markets Union is “particularly important, because investment is one area where the whole CESEE region, Bulgaria included, could benefit; productivity growth will be higher if investment can be stronger,” Berger said.