29.09.2022

THE EBRD PREDICTS A SLOWDOWN IN ECONOMIC GROWTH IN BULGARIA NEXT YEAR

The European Bank for Reconstruction and Development (EBRD) has revised upward its forecast for Bulgaria's economic growth in 2022, but at the same time it already expects a sharper slowdown in growth in 2023.

In its September report, the EBRD expects that our country's GDP will grow this year by 3.0%, following a May forecast of 2.5% expansion and after an expansion of 4.2% in 2021.

This notable upward revision is due to the fact that the Bulgarian economy grew sustainably in the first half of 2022 by 4.5% year-on-year, driven by strong business stockpiling as well as good private and government consumption.

Personal consumption increased in the first six months of 2022 by 4.2% year-on-year, but the EBRD noted that the upward momentum had waned amid rising inflation and declining consumer confidence. At the same time, investment in the country fell sharply in the second quarter as businesses faced increased uncertainty, with investment 14% below pre-coronavirus pandemic levels.

Nevertheless, industrial production in Bulgaria increased in the first half of the current year by almost 17% year-on-year, and it remained stable, despite the suspension of Russian gas from the end of April 2022.

The EBRD said inflation had worsened significantly, reaching 17.3% year-on-year in July 2022 and above 20% in food, utilities and housing, transport, restaurant and hotel prices.

The government's main measure against rising energy costs is the full compensation of companies' electricity bills at electricity prices above 125 euros/MWh (over BGN 250 per megawatt hour).

Households in the country were protected by regulated electricity prices and pensions were increased by 10% in July 2022.

However, the ongoing political crisis could delay the absorption of the second payment of the EU's Recovery and Resilience Plan, the European Bank for Reconstruction and Development has warned.

Thanks to the economy's solid performance in the first half of the year, GDP growth was revised upwards for the whole of 2022 to 3 percent from the EBRD's May forecast of 2.5 percent economic expansion.

Uncertainty about gas supplies, weakening domestic and external demand amid high inflation and deteriorating confidence, as well as political uncertainty, could however lead to a sharp slowdown in economic growth in Bulgaria in 2023 to 1.5% at EBRD's previous May forecast for expected expansion next year of 3 percent.