Bulgaria's gross domestic product (GDP) is expected to grow by 3% in 2022, the European Bank for Reconstruction and Development (EBRD) says in its report, "Regional Economic Prospects: September 2022".
Due to the robust performance of the Bulgarian economy in the first half of the year, GDP growth has been revised up from EBRD's May 2022 forecast, which predicted that the country's GDP would grow by 2.5% this year.
However, EBRD has lowered its forecast for 2023. Bulgaria's economic growth is now expected to slow to a modest 1.5% next year, while the May forecast gave a growth rate of 3%.
The more pessimistic forecast for 2023 is explained with "uncertainty over gas supply, weakening domestic and foreign demand amid high inflation and deterioration of [consumer] confidence, as well as political uncertainty".
The report says that the Bulgarian economy expanded by 4.2% in 2021, and remained quite resilient in the first half of 2022 with growth of 4.5% year-on-year, driven by strong accumulation of inventories, private and government consumption. Private consumption also expanded by 4.2% year-on-year in the same period, but momentum has declined amid rising inflation and decreasing consumer confidence.
Investment declined sharply in the second quarter, as firms confront increased uncertainty, and was 14% below pre-pandemic levels. Nevertheless, industrial production increased by almost 17% year-on-year in the first half of 2022, as manufacturing remained resilient in spite of the Russian gas shutdown since April 2022.
Inflation in Bulgaria has significantly worsened, reaching 17.3% in July 2022, and above 20% for food, utilities and housing, transport, and restaurant and hotel prices.
The ongoing political crisis in the country may cause delays in the absorption of the second disbursement of the EU's Recovery and Resilience Facility, the EBRD says.
The main theme of the report is "A cold winter ahead? Confronting the energy crunch". The EBRD says that reduced supplies of gas from Russia and mounting inflation worldwide will slow economic growth further next year in the regions where the EBRD works. The Bank now forecasts GDP growth across its regions of 3% in 2023, a downward revision of 1.7 percentage points from its report in May. Average inflation in the EBRD regions reached 16.5% in July.