05.02.2015

The European Commission has brought its estimates for Bulgaria's economic development until 2016 closer to those of the Ministry of Finance, forecasting real GDP growth of 1.4% for 2014, 0.8% for 2015 and 1% in 2016 respectively. According to the Commission the main driver of growth will be external demand. After the considerable deterioration of the fiscal position in 2014 the general government deficit is forecast to improve to 3% of GDP in 2015.

In 2015, household consumption will be supported by lower fuel costs, but the decline in the working-age population has already become a drag on household disposable income and consumption.

The rebound of gross fixed capital formation in 2014 has been driven exclusively by public investment, supported by accelerated EU funds absorption. The EC expects the public investment outlook to turn negative in 2015, as the programming period is coming to an end, and with financial conditions remaining tight, firms are expected to freeze or postpone investment plans.

Inflation is expected to turn positive again at the end of 2015. Bulgaria recorded the strongest consumer price decline in the EU in 2014, with the HICP at -1.6%. This is explained by some country-specific factors, some of which of a temporary nature. Lower fuel costs are set to keep HICP inflation largely negative until late 2015, with HICP forecast at -0.5% in 2015. Inflation is projected to pick up to 1% in 2016 once the effect from oil prices fades.

The general government deficit is projected to reach 3.4% of GDP in 2014, driven by expenditure overruns and weaker-than-expected revenues in VAT. The Commission expects that the consolidation measures adopted with the 2015 budget are set to improve the deficit to 3% of GDP in 2015 The general government gross debt is forecast to have increased rapidly from 18.3% in 2013 to about 27% in 2014, reflecting financing needs for the annual deficit, the measures to stabilise the financial sector and also the roll-over of a large bond maturing in January 2015. The EC forecasts for 2014 and 2015 are close to those of the Ministry of Finance in terms of real GDP growth, private consumption and investment (for 2014), exports and imports (for 2015), current account, employment and unemployment (for 2014). The inflation figures for 2014 are reported ones. The differences in inflation for 2015 are due to the fact that in December 2014 and January 2015 oil prices have fallen considerably and the most recent forecasts show that they will remain low in the medium term.

The two institutions' forecasts have more substantial differences for 2016, mainly for investments as the EC expects the drop to deepen. The Ministry of Finance presumes that in 2016 the absorption of EU funds under operational programmes approved in 2015 will begin. It is also expected that from 2016 the new EU investment plan is to have a positive impact on Bulgaria's economy.  

The table below compares the present EC forecast with the forecast of the Ministry of Finance published in November 2014.    

Comparison of key macroeconomic indicators