08.11.2018

The European Commission expects the growth of the Bulgarian economy to reach 3.5% in 2018, which is a slight decrease compared to the summer macroeconomic forecast, but retains its expectations for a 3.7% growth in 2019. Domestic demand is the main driver of the domestic economic activity. Private consumption growth is supported by positive developments in the labour market, positive consumer sentiment and increased real disposable income. Investment remains strong, enjoying the support of the low interest rate environment and EU funding absorption.

According to the Commission, domestic demand is expected to remain the engine of GDP growth with 3.7% in 2019 and 3.6% in 2020. In 2019, public consumption is set to accelerate due to additional rises in public sector wages, with private consumption remaining high, although somewhat more moderate than in 2018. Investment is set to contribute further to the economy's growth, as more projects co-financed by the EU get underway or progress. The contribution of the external sector to growth is forecast to be less negative in 2019 and 2020 as exports are expected to rebound, while import growth is set to moderate somewhat.

The Commission forecasts headline inflation to reach 2.6% on average in 2018 due to the rise in energy prices passing through to service prices, while strong domestic demand and increases in unprocessed food prices due to a lower harvest over the summer. Over the next two years, inflation is expected to decrease somewhat to 2.0% in 2019 and 1.8% in 2020 as a result of base effects with international prices.

The unemployment rate in Bulgaria came close to its pre-crisis low. The Commission expects the unemployment rate to decline further to 5.7% by 2020.

According to the Commission the strong fiscal stance will be preserved, expected to lead to sustained budget surpluses over the forecast period. Strong GDP growth and higher wages in the economy are expected to boost tax revenue and balance the expected current expenditure increases. At the same time, EU funds are set to continue finance a large part of public investment growth. Public debt is forecast to drop to below 20% of GDP by 2020.