Bulgaria Economic Outlook
Annual GDP growth slowed in Q4, according to a preliminary release. Weaker exports growth and a downturn in fixed investment drove the moderation. However, stronger final consumption growth buttressed the expansion. In Q1 2023, the economy is likely losing further steam. Consumer sentiment grew more pessimistic in January–February compared to Q4, amid still-elevated price pressures and higher interest rates, which should be denting private spending. Business sentiment also deteriorated in the first two months of the year, pointing to lackluster investment activity. Moreover, dreary economic conditions among key trading partners are likely hindering exports growth. Meanwhile, ahead of the 2 April elections, on 17 February the interim government scrapped its 1 January 2024 target date for euro adoption amid above-target inflation and delayed legislative reforms.
Bulgaria Inflation
In January, inflation inched down to 16.4% on softer price pressures for food (December: 16.9%). Following 2022’s multi-decade high, the headline rate should ease sharply in 2023 on a more diversified natural gas supply, softening commodity prices and cooling domestic demand. Domestic political instability and stronger-than-anticipated domestic activity pose upside risks.