GDP growth rises to over two-year high in Q4

Economy ends 2024 on a strong note: Annual GDP growth improved to 3.4% in the final quarter, up from 2.8% in the third quarter and marking an over two-year high. On a seasonally adjusted quarter-on-quarter basis, economic growth accelerated to 0.9% in Q4, up from the previous quarter's 0.8% growth and marking the strongest increase in three years. In 2024 as a whole, the economy expanded 2.8%, improving from 2023’s 1.9% rise.

Domestic demand powers expansion: Domestic demand drove Q4’s annual acceleration. Private consumption growth picked up to 4.9% year on year in the final quarter (Q3: +3.8% yoy), which marked the best reading in three years. Additionally, fixed investment shrank at a softer pace of 1.5% in Q4, which was better than Q3’s 1.7% fall. Public consumption growth, meanwhile, waned to 6.8% in Q4 (Q3: +9.9% yoy). On the external front, exports of goods and services contracted 1.4% in Q4 (Q3: +0.2% yoy). Meanwhile, imports of goods and services growth waned to 2.2% in Q4 (Q3: +3.1% yoy).

Momentum to slow in 2025: Our Consensus is for GDP growth in 2025 to inch down from 2024’s level on softer growth of private consumption—which makes up the bulk of Bulgaria’s GDP—as inflation accelerates and real wage growth melts. That said, GDP growth will be supported by rebounds in fixed investment and exports; looser monetary conditions, renewed political stability, the increased uptake of EU funds and stronger momentum in the EU should add tailwinds. Key downside risks to the outlook include weaker-than-expected absorption of EU funds and a brewing trade war between Europe and the U.S. undermining export demand.

Panelist insight: EIU analysts said: “After slowing in 2024 amid low take-up of EU funds, we expect gross fixed investment growth to pick up in 2025. The appointment of a new government in January 2025 following ten months of interim government should increase the take-up of EU funds, supporting public investment. […] Investor sentiment is set to improve, driven by Bulgaria's full entry into the Schengen area in January 2025, and the likely adoption of the euro by 2026. Schengen area membership should also help to boost merchandise trade flows, given the importance of road freight for Bulgaria's trade with the EU.”

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