Investment in Bulgaria

Bulgaria - Investment

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.”

FocusEconomics panelists see the economy expanding 2.7% in 2022, which is up 0.1 percentage points from last month’s estimate, and 2.4% in 2023.