Bulgaria: Economic growth slows in Q2
GDP growth slowed to 4.0% year on year in the second quarter, from 5.0% in the first quarter. The economy likely suffered from the spillover effects of the war in Ukraine; Russia cut gas exports to Bulgaria in April, thrusting the country into energy insecurity amid already elevated prices. As a result, weaker private-sector profitability and consumer purchasing power weighed on growth in Q2.
Private consumption growth waned to 2.1% year-on-year in Q2 from a 6.4% expansion in Q1. This marked the highest inflation rate since 1998, and growing consumer pessimism continued to ravage household disposable incomes. Moreover, fixed investment dropped at a quicker pace of 8.1% in Q2, from the 4.4% contraction logged in the prior quarter, marking the sixth consecutive quarter of contraction. In contrast, public consumption growth accelerated to 13.0% in Q2 (Q1: +1.0% yoy).
On the external front, exports of goods and services growth accelerated to 10.7% in Q2 (Q1: +7.4% yoy). In addition, imports of goods and services growth picked up to 16.6% in Q2 (Q1: +14.1% yoy), marking the best reading since Q2 2021.
On a seasonally adjusted quarter-on-quarter basis, economic growth ebbed 0.8% in Q2, compared to the previous quarter’s 0.9% growth. Q2’s reading marked the worst since Q2 2020.
On the outlook of the Bulgarian economy, Kristofor Pavlov, Chief Economist at UniCredit Bulbank commented:
“We now think that the economy will undergo a shallow recession at the turn of the year. However, several factors should help it to avoid a more meaningful growth contraction. Importantly, commitment to euro adoption in 2024 will be reconfirmed, which will help to stabilize expectations and keep borrowing costs in check.”