site.btaEuropean Commission Raises Its Growth Forecasts for Bulgaria for 2025, 2026

The European Commission expects Bulgaria’s gross domestic product (GDP) to increase by 3% in 2025, according to its Autumn 2025 Economic Forecast released on Monday. This represents an upward revision from the 2% growth projected in the spring. For 2026, the Commission forecasts growth of 2.7%, also higher than the spring estimate of 2.1%. In 2027, GDP growth is expected to ease to 2.1%.

According to the Commission’s assessment, inflation in Bulgaria stood at 2.6% in 2024. Harmonized inflation (HICP) is projected to reach 3.5% in 2025, a slight downward revision of 0.1 percentage points from the spring forecast. For 2026, the Commission expects consumer prices to rise by 2.9%, a notable upward revision from the previously forecast 1.8%. Inflation is projected to accelerate to 3.7% in 2027.

The Commission notes that the labour market in Bulgaria remains stable. At an unemployment rate of 4.2% in 2024, the indicator is expected to decline to 3.5% in 2025 before ticking up slightly to 3.7% in 2026 and 3.8% in 2027. The forecast levels are lower than those in the spring, when unemployment was projected at 4% for 2024 and 3.8% for 2026.

Economic growth reached 3.4% in 2024, driven by private and public consumption. Investment accelerated in the first half of 2025, boosted by increased absorption of Recovery and Resilience Facility (RRF) funds. Consumption and investment are, however, expected to slow in the second half of 2025 due to lower public sector contributions, reflecting lower-than-planned government revenues.

In 2026 and 2027, private consumption growth is expected to moderate in line with slower wage and social transfer growth. Private investment is forecast to continue supporting economic activity as business confidence improves ahead of the euro adoption. The acceleration in EU funds absorption that began in 2025 is expected to continue through 2027.

Exports contracted at the start of 2025, partly due to maintenance-related disruptions at two major exporters, but growth is expected to resume in the second half of the year and continue over the forecast horizon. Imports are also projected to increase, driven by rising domestic demand and higher defence spending, including significant defence equipment purchases planned for late 2025 and 2027. Overall, the contribution of net exports to GDP remains slightly negative through 2027.

Nominal and real wages increased substantially across most sectors in 2024 and the first half of 2025, reflecting adjustments to the high inflation of 2022-23, the catching-up of real incomes with EU averages, and one-off increases in sectors such as security, defence and education. Wage growth is expected to slow as inflationary pressures ease and the private sector seeks to preserve competitiveness, while public sector wage increases are constrained by fiscal limitations.

Employment growth reflects employers’ efforts to attract workers, particularly low-skilled labour from third countries, which could help ease wage pressures in the coming years.

HICP inflation is projected at 3.5% in 2025, following the reinstatement of standard VAT rates for bread and restaurant services, higher excise duties on tobacco and increases in regulated gas, heating and electricity prices. Food prices have risen through most of the year due to higher import costs.

Inflation is expected to slow to 2.9% in 2026 as the impact of higher administratively set prices fades. However, services and food inflation are projected to remain elevated, while energy prices are expected to remain broadly unchanged. Higher food inflation reflects increased import costs and rising wages among domestic producers. Services prices in 2026 will also reflect the substantial wage increases in 2024-25, with this effect expected to weaken in 2027 as wage growth moderates.

Inflation is forecast to accelerate again to 3.7% in 2027, mainly due to higher energy prices following the introduction of the Emissions Trading System for buildings and road transport (ETS2), unless its implementation is postponed.

In 2025, the budget deficit is expected to remain at 3% of GDP due to both automatic and discretionary increases in social spending and public sector wages, particularly in defence and internal security. As a result, expenditure growth continues to outpace revenue growth despite efforts to improve tax collection, the return to standard VAT rates for bread and restaurant services, and the positive effect of rising private sector wages.

Public investment in 2025 is expected to exceed 2024 levels, supported by accelerated implementation of the Recovery and Resilience Plan and scheduled defence equipment deliveries.

In 2026, wage and pension spending pressures in the public sector are projected to ease, while defence-related capital expenditure is expected to decline, contributing to a reduction in the deficit to 2.7%, the Commission said.

Against the backdrop of a second wave of defence equipment deliveries in 2027, estimated at 1.2% of GDP and in the absence of offsetting measures, the deficit is projected to rise to 4.3%.

The government debt-to-GDP ratio is forecast to increase from 23.8% in 2024 to 28.5% in 2025, reaching 30.6% in 2026 and 32.6% in 2027. The large increase in 2025 reflects debt refinancing operations and planned capital injections into the Bulgarian Energy Holding (BEH) and the Bulgarian Development Bank (BDB).

Potential statistical reclassification of capital injections as deficit-increasing measures, along with the persistent increase in public sector wages and pensions not fully offset by higher revenues, represent significant downside risks to the fiscal balance forecast, the Commission noted.