The Еuropean Commission has published its winter macroeconomic forecast

The European Commission has improved its forecast for the growth of the Bulgarian economy to 3.3% for 2016, against 3.1% in the autumn of 2016. The projections for 2017 and 2018 remain unchanged at 2.9% and 2.8%, respectively.

Domestic demand will be the main GDP growth driver throughout the forecast period. Private consumption is estimated to have increased by 3.2% in 2016, slightly slowing down in the next years. Following a decrease by 0.5% in 2016 (as a result of contracted public investment), in 2017 investment will grow due to better EU funds absorption. At the same time, net exports' contribution will decrease throughout the forecast period as the improved domestic demand will lead to accelerated increase of imports.
The Commission notes the good performance of exports in 2016, underpinned by stable demand from EU trading partners as well as a strong tourism season. Accordingly, the forecast is for a current account surplus of 2.6% of GDP. In the next two years the positive current-account balance is expected to gradually decline to 1.4% and 0.8% of GDP, respectively. The main contributor will be the higher imports driven by the strong domestic demand and the expected rise in energy prices. Tourism exports which will grow at a slower pace in 2017 as a result of the high base reached in 2016, will also contribute to the decrease in the current account surplus.
The European Commission projects deflation in Bulgaria to end in 2017. Total HIPC in the country is expected to increase by 0.8% due to strong domestic demand, rising prices for processed food as well as energy prices. The inflation is projected to accelerate to 1.2% in 2018.
The European Commission expects the positive trends on the labour market to continue. Employment growth rate has been increased to 1.1% for 2016 as compared to the autumn forecast, but the expected change in the number of persons employed in the medium term has been decreased to 0.5% in 2017 and 0.2% in 2018. Together with the expected decrease in the labour force, the increase in employment will further reduce the unemployment rate to 6.8% in 2018.
The Commission expects the budget deficit (on accrual basis) for 2016 to be 0.4% mainly due to the higher than expected tax revenues resulting from the more favourable macroeconomic development and the measures taken to improve collection. In structural terms, deficit improvement is by 1 percentage point of GDP. Under a no-policy-change scenario, the deficit in 2017 is forecast at 0.5% and in 2018 - at 0.3%.