UniCredit Bulbank has revised up its inflation forecast for Bulgaria for 2026. The update appears in the bank's latest Quarterly Macroeconomic Review for the first quarter of 2026, published on the UniCredit Bulbank website on July 24. In the review, average annual inflation is projected to accelerate to 5% in 2026 before gradually entering a disinflationary path, declining to 4% in 2027 and further to 3.1% in 2028.
The report reads: "While fiscal consolidation measures are expected to help ease inflationary pressures over the forecast horizon, the new shock to energy commodity prices has altered the near-term inflation trajectory. The escalation of tensions in the Middle East has led to a significant increase in energy prices so far this year, which, according to our estimates, will generate substantial second-round effects on food prices and core inflation over the coming quarters. We expect the pass-through of the cost shock to consumer prices to peak in 2027, before gradually diminishing during 2028."
The report cites data from the National Statistical Institute for May and June, which pointed to a significant decline in food prices, suggesting that the measures introduced by the government successfully curbed unfair trading practices. This led to stronger-than-expected disinflationary effect on food prices.
UniCredit Bulbank expects the Excessive Deficit Procedure (EDP) to be abrogated in 2029. According to the bank's projections, the general government deficit on an accrual basis is expected to widen to 4.8% of GDP in 2026. Fiscal consolidation measures are expected to reduce the budget deficit to around 3.8% of country’s GDP in 2027 and further to 3.3% in 2028. Such an outcome would create the conditions for the abrogation of the EDP in the first half of 2029 and would also allow for a partial rebuilding of fiscal buffers needed to respond to potential future economic shocks.
Real GDP growth is projected to moderate to 2.5% in 2027, from 2.9% in 2026. The main factor behind the easing in economic activity next year will be the slower growth of private consumption. On the one hand, the planned fiscal consolidation and the associated restraint in public sector wage expenditure are expected to lead to a gradual moderation in wage growth and household disposable income.