09.11.2017

The European Commission has increased the expected growth of the Bulgarian economy to 3.9% in 2017 and 3.8% in 2018 from the expected growth of 2.9% and 2.8%, respectively, in its spring forecast. The revision is due to both the good performance of the economy in the first half of the year and the revision of the 2016 GDP data.

Domestic demand will be the main driver for GDP growth in 2017, supported by strong private and public consumption and recovery in investment growth. Domestic demand will remain the engine of GDP growth throughout the forecast period, while private consumption is projected to slow down in 2018 and 2019. Higher imports, driven by strong domestic demand, will result in a decline of the current account surplus to 3% of GDP in 2017. This trend in imports is expected to continue in 2018 and reverse in 2019. The current account positive balance is thus expected to reduce to 2.4% and 2.3% of GDP in 2018 and 2019, respectively.

In 2017, the Commission expects the annual average inflation in Bulgaria to reach 1.0%, with the main factors for this being strong domestic demand, higher prices for utilities and recovering energy and commodity prices. Annual average inflation is forecast to accelerate to 1.5% in 2018 and 1.6% in 2019.

The Commission expects the positive developments on the labour market to continue in the medium term. Employment is expected to rise by 0.7% in 2017, supported by domestic demand, especially investment. For the next two years the Commission expects the employment growth rate to slow down to 0.4% and 0.3% due to limited labour supply. The unemployment rate is expected to decrease to 6.4% in 2017 and to gradually decline to 5.7% in 2019. Under the conditions of lower unemployment, the growth of labour income will remain high and the increase in public sector wages will not pose risks to the budget stance of the economy.

The estimates of the Commission for the general government budget balance coincide with the fiscal policy targets laid down in the three-year budget forecast 2018 – 2020, namely: balanced budget in 2017 and 2018 and a surplus in 2019. Strong revenue performance is expected to outweigh higher expenditures on personnel and investment.

For the current year, the Commission expects the general government debt to significantly decline (from 29% of GDP in 2016 to 25.7% of GDP) as a result of the primary budget surplus and the repayment of debt of around 2 pps. of GDP. Having in mind the excess of revenues over expenditures in the primary balance and the low price of debt, the indicator is projected to further decrease to 24.3% and 22.8% of GDP in 2018 and 2019, respectively.