The European Commission raised its forecast for Bulgaria’s economic growth

The European Commission raised its forecast for Bulgaria's economic growth in 2014 by 0.2 p.p. and forecasts that this year it will be 1.7% and 2% in 2015. This shows the published today Winter Forecast. According to the EC analysis the main driver will be domestic demand – increased consumption and private investments. Net exports will also have a positive effect on economic growth and thus recovery is expected to be more broad-based. The new EC forecast is very close to the one provided for by the Ministry of Finance in the 2014 budget for a real growth of 1.8%. The Commission expects that GDP for 2014 in current prices will be BGN 81.8 billion which is by BGN 200 million more than the forecast underlying the budget for this year.

The forecasted by the EC budget deficit of 1.9% and 1.7% on accrual basis for 2014 and 2015 respectively is also close to the target set by the Bulgarian Government – 1.8% and 1.5% respectively. The forecast states that the budget deficit was 1.9% of GDP in 2013 and that this was due to a combination of a soft patch in economic recovery and additional spending for social expenditure (including the increase in pensions) and various current expenditure items. However, in 2014 and 2015 the budget policy will be neutral in respect of the economic cycle. The Commission expects the recovery to be slow compared to many other converging economies, as a significant population decline (due to ageing and emigration) continues to erode the growth potential. This is the main reason for expecting economic growth in 2015 to be 2%, while the MoF expects higher growth.

The report states that risks to this macroeconomic forecast seem broadly balanced. The most significant downside risk is related to the expected recovery in household consumption, which could prove weaker than expected given that the Bulgarian labour market and household sentiment are still fragile. However, as observed over the recent years, in periods of weaker domestic demand the Bulgarian economy has been able to partly compensate this with higher net exports. After four consecutive years of falling employment, labour market statistics indicate first signs of stabilisation since the second half of 2013 and gradual improvement is expected.

The European Commission's winter forecast foresees a continuation of the economic recovery in most Member States and in the EU as a whole. After exiting recession in spring 2013 and three consecutive quarters of subdued recovery, the outlook is for a moderate step-up in economic growth. Following real GDP growth of 1.5% in the EU and 1.2% in the euro area in 2014, activity is seen accelerating in 2015 to 2.0% in the EU and 1.8% in the euro area. These figures each represent an upward revision of 0.1 percentage points compared with the autumn 2013 forecast.

You can see the Winter Forecast of the European Commission here.