The European Commission published its European Economic Forecast for Summer 2022, which remains mostly unfavorable for both Bulgaria and the EU as a whole.
The main reason for the lack of optimism is the military conflict between Russia and Ukraine, which also showed Europe’s high energy dependence on Russia. This dependence, combined with the disruption of supply chains, led to an incredible increase in energy prices, with the price pressure gradually spreading and covering almost all goods and services.
In the second quarter of 2022, inflation in the Euro area recorded the highest annual growth rate – rising from 7.4% in March to 8.6% in June. For the EU, the increase was even more dramatic, with year-on-year figures showing inflation rates of 7.8% in March and 8.8% in May.
Average annual inflation in 2022 is expected to reach a record 7.6% in the Euro area and 8.3% in the EU. If pressures from energy prices and supply constraints fade, inflation is expected to decline steadily thereafter and to fall to 4.0% and 4.6% respectively in 2023.
The consequences of the war have a negative impact on the pace of economic development of the European Union.
Annual growth for 2022 is still positively influenced by last year's post-pandemic recovery momentum, but in spite of this, and even after the encouraging results of the summer tourism season, expectations are for weak economic activity in the rest of the year and decreased external demand.
The Summer 2022 Economic Forecast projects that the EU economy will grow by 2.7% in 2022 and 1.5% in 2023. Growth in the Euro area is expected at 2.6% in 2022, moderating to 1.4% in 2023.
A major role for the positive expectations for the economic development of Bulgaria in 2022 and 2023 is played by the Recovery and Resilience Plan, whose successful implementation is expected to lead to an increase in investment interest in our country.
In the Summer 2022 Economic Forecast of the EC, real GDP growth of 2.8% in 2022 and 2.3% in 2023 is foreseen, which even exceeds the indicators of the EU as a whole, but shows significantly lower expectations, especially for the current year, from those for European countries similar to Bulgaria, such as Cyprus, Croatia, Slovenia and Romania, where the growth forecast for 2022 varies between 3.2% and 5.4%.
Unfortunately, the forecast figures for growth of the annual inflation in the country further worsen the picture with levels significantly higher than those for the EU and the Euro area, of 12.5% for this year, compared to 7.8% for the Euro area and 8.3% for the EU, and 6.8 % for next year.
In conclusion, the European Commission’s forecast emphasizes that the risks to economic activity and inflation remain high and largely depend on the course of the military conflict and, above all, on the consequences of its development for gas supplies to Bulgaria and Europe. A further increase in gas prices could not only hinder economic growth, but also lead to increased risk to financial stability and increased levels of inflation.
The possibility that the resurgence of the pandemic in the EU would bring renewed disruptions to the economy also cannot be excluded.
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