The EC expects a serious slowdown in the growth of the Bulgarian economy in 2023
Source：Investor BG
From：Taiwan Trade Center, Sofia
Update Time：2022/12/06
The European Commission (EC) increases its forecast for the growth of the Bulgarian economy for this year compared to the forecast from spring . However, the institution already expects a more serious slowdown in our economy next year, although it will not lead to a contraction. This can be seen from the EC's autumn economic forecast for the economies of the member states of the European Union (EU).
The slowdown in growth is related to lower domestic and foreign demand and deteriorating consumer sentiment due to inflation, the EC said. Household consumption is expected to remain weak in 2023 and then pick up gradually in 2024 as inflationary pressures ease, the EC forecast.
The Commission expects the economy to be supported by the upcoming growth in investments due to the start of the absorption of funds from the new EU program period. However, exports will slow down significantly this year, and the trend will continue next year as well. The EC expects a moderate recovery of exports in 2024.
Forecasts for Bulgaria
For this year, the EC expects Bulgaria's economy to grow by 3.1%. This is 1 percentage point higher than the spring forecast, when gross domestic product (GDP) was expected to expand by 2.1%.
However, for next year, Brussels expects the Bulgarian GDP to slow its growth to 1.1%. In the spring forecast, growth of 3.1% was assumed, which represents a difference of 2 pp. in the forecasts.
For 2024, the EC expects Bulgaria's economy to accelerate its growth again to 2.4%.
The EC predicts that inflation in Bulgaria will reach 12.8% on average for the whole of 2022 and will slow down to 7.4% next year. This is above the levels entered in the spring forecast (11.9% for 2022 and 5% for 2023, respectively). Normalization of inflation The Commission expects in 2024, when the indicator will reach 3.2% for the year.
Despite the slowing economy and high inflation, the EC predicts that unemployment in the country will remain stable at 5.2% this year and next, rising slightly to 5.3% in 2024.
Indicators for the development of the Bulgarian economy. Table: European Commission
For the public debt, the EC expects smooth growth over the next two years. The gross public debt-to-GDP ratio is forecast to fall to 22.5% this year from 23.9% in 2021 and increase to 23.6% in 2023 and 25.6% in 2024.
Bulgaria's budget deficit, according to the EC, will narrow slightly this year to 3.4% of GDP, compared to 3.9% of GDP in 2021. Below the 3% limit adopted in EU fiscal rules as the watershed between acceptable and excessive deficit, the indicator is expected to fall next year (to 2.8%) and continue to gradually decrease in 2024 (2.5%).
However, Bulgaria's current account deficit is expected to widen in the coming years - this year to 1.2% from 0.5% last year, to 3% next year and to 3.2% in 2024.
Forecasts for the EU and the Eurozone
The EC expects in 2022 the EU's GDP to grow by 3.3%, and the euro area's – by 3.2%. The forecast is better than in the spring, when the EC expected the EU and eurozone economies to expand by 2.7% each. For 2023, the forecast is for just 0.3% growth in both regions, compared to 1.5% and 1.4% respectively for the EU and the Eurozone in the spring forecast.
Inflation in the EU is expected to reach an average of 9.3% this year, and in the Eurozone – 8.5%. In 2023, inflation is expected to slow down to 7% in both regions.
The EC notes that there are no signs to suggest that the war in Ukraine will end soon, let alone a peaceful resolution of the conflict. The EU is among the economies most exposed to the risks of war due to its geographical proximity and strong – though much declining – dependence on fossil fuel imports, the Commission said.
Autumn economic forecast of the European Commission. Graphic: European Commission
However, the report emphasizes that the growth of the EU economy in the first half of the year exceeded expectations. With the easing of COVID measures, consumers have resumed international travel and returned to restaurants, hotels and other services requiring intensive contact, which has unleashed strong growth in spending, the document added.
This expansion also continued in the third quarter, but at a slower pace, the EC adds. As the terms-of-trade shock works its way through the economy, the sharp erosion of household purchasing power is changing their sentiments. There is also a decline in business confidence due to high production costs, continued supply constraints and tighter financing conditions amid rising central bank interest rates.
The EC indicates that the contraction of economic activity will continue in the first quarter of next year. The Commission forecasts that most EU and Eurozone countries will experience a technical recession this winter (contraction of GDP for two consecutive quarters). A slight recovery in growth is expected as early as spring, but with strong "headwinds," the report said.
Overall, total investment in the EU is projected to slow significantly from annual growth of 3% in 2022 to 0.5% in 2023. Investment will rebound in 2024, which is forecast to grow by 2.3 %.
Because of its short duration, the recession is not expected to cause much damage to the economy. An additional assumption of this forecast is that the increase in bankruptcies will remain generally limited and sector specific. This will allow banks to take the hit from the growth of non-performing loans, concludes the EC.
Source: https://www.investor.bg/a/515-ikonomika-i-makrodanni/363817-ek-ochakva-seriozno-zabavyane-na-rasta-na-balgarskata-ikonomika-prez-2023-g