Bulgaria Economic Forecast

Annual economic growth decelerated in Q1 2023, according to a flash release. Softer growth in private spending and exports dampened Q1’s reading amid deeper consumer pessimism, still-strong inflation and muted activity among key trading partners. In Q2, GDP growth is likely cooling further. In April–May, business confidence worsened from Q1, consumer sentiment remained pessimistic, and higher interest rates likely weighed on spending and investment. That said, inflation in April fell to a 14-month low, offering some relief to households’ budgets. In politics, the prospects of government formation are waning. After center-right party GERB’s first mandate recently failed, President Radev handed the second mandate to the pro-Western coalition PP-DB on 29 May. However, he advised them not to fulfill the mandate, sparking protests and threatening to extend an already protracted political crisis.

In April, inflation fell to 11.6% (March: 14.0%) on falling prices for transport and softer price pressures for food. The Consensus is for average inflation to cool sharply this year on lower commodity prices, weaker domestic demand and a high base effect. Renewed energy uncertainty this winter and a stronger-than-expected economy pose upside risks.