10.11.2016

In its autumn forecast the European Commission increased the projected growth of the Bulgarian economy to 3.1% in 2016 and 2.9% in 2017 from the projected growth of 2% and 2.4%, respectively, in its spring forecast. The Commission also expects the budget deficit for the two years to be lower than in its spring forecast.

According to the autumn forecast of the Commission, private consumption is expected to show strong performance in 2016, while investment in the economy is expected to contract due to the projected drop in public investment as a result of the required technical time to launch projects for the new programming period under the operational programmes for 2014 - 2020. The implementation of these projects is expected to start in 2017 and this will lead to improvement of the investment activity in the country. At the same time net exports will contribute positively to GDP growth in both forecast years, but in 2017 it will be lower due to a slowdown in the growth of exports and a more pronounced increase of imports.

The Commission points out that risks to the growth outlook appear balanced. Upside risks include higher private consumption growth. Given the high openness of the economy, geopolitical uncertainties and weak import demand from the main trading partners could pose downside risks for exports and GDP growth.

The Commission notes the good performance of exports in 2016, underpinned by stable demand from EU trading partners as well as a strong tourism season. The current account is forecast to be at a surplus of 2% of GDP in 2016. In the next two years, mainly due to higher import growth fuelled by a strong domestic demand and by the expected rise in energy import costs, the balance is expected to gradually decline to 1% and 0.6%, respectively.

Inflation is forecast to be negative in 2016 at -0.9%, and the Commission projects deflation in Bulgaria to end in 2017. HIPC in the country for the next year is expected to pick up pace to reach 1%, mainly driven by buoyant domestic demand as well as recovering energy prices.

The Commission expects the positive trends on the labour market to continue, with the employment growth being increased, as compared to the spring forecast, to 0.8% in 2016 and 2017 and 0.7% in 2018. Together with the expected decrease in the labour force, this is likely to further reduce the unemployment rate to 7.1% in 2017 and 6.3% in 2018.

General government debt is expected to decline to 26.3% of GDP in 2017 and 25.9% of GDP in 2018 as a result of the low primary budget deficits and the improving debt financing conditions.