Bulgaria economic overview 2019

1. Roumen Galabinov, Economist

2. EC forecast for Bulgaria
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Indicators 2017 2018 2019 2020
GDP growth (%, yoy) 3,8 3,1 3,3 3,4
Inflation (%, yoy) 1,2 2,6 2,0 1,8
Unemployment (%) 6,2 5,2 5,0 4,8
Public budget
balance (% of GDP)
1,2 2,0 0,8 1,0
Gross public debt (%
of GDP)
25,6 22,6 20,5 18,4
Current account
balance (% of GDP)
6,2 2,5 1,6 1,5

3. IMF forecasts for Bulgaria
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 GDP growth as ending at 3.3% in 2019, but slowing to 3% in 2020, according to
its April 2019 World Economic Outlook.
 Unemployment is seen as dropping from 5.2% in 2018 to 5% in 2019 and 2020.
 Annual average consumer price inflation in Bulgaria will end at 2.4% in 2019,
from 2.6% in 2018.
 The economic outlook foresaw Bulgaria’s current account balance, which ended
2018 as 3.9% of GDP, decreasing but remaining positive, with a surplus of 1.9%
in 2019 and 1.3% in 2020.

4. World Bank Bulgaria forecast
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 GDP growth is expected to slow down from 3.1% in 2018 to 3.0% in 2019
and 2.8% in 2020.
 Current account balance is expected to remain positive, but the surplus is
projected to narrow progressively to 2.1% in 2021.
 Consumer price inflation is seen speeding up from 2.8% in 2018 to 2.9% in
2019, and 3.0% in both 2020 and 2021.

5. Economic development 2019
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 For the Bulgarian economy in 2019 there are two different prospects and
forecasts.
 One of them is relatively positive and the other moderately pessimistic.
 The growth of the GDP could reach 3.1%-3.4% which is a good
performance against the backdrop of the economic development in the
Eurozone.
 This type of positive forecasters estimate that the 2019 will be relatively
good year for the Bulgarian economy, with stable economic growth and
low unemployment.

6. Economic development 2019-21
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 At the same time the slowdown of European as well as the Bulgarian
economic growth is visible.
 In 2019, the economic delay may continue to levels of 3.0-3.1%, next year
it will be 2.9-3.0%, and in 2021 it can go down to 2.8%.
 The main reasons for this negative trend is the slowdown in Euro area
growth, which is Bulgaria’s main trading partner, as well as the worsening
shortage of labor force in the country.

7. Incomes
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 Bulgaria desperately needs higher incomes and consumption, because
economic data show that our country is last in EU in terms of the GDP
growth per capita ratio.
 The lower demand and weaker sales in Bulgaria is mainly due to the low
purchasing power of the Bulgarian population.
 The faster salaries are compared to the European ones, the less people will
leave the country in search of a job.
 The main challenge facing the Bulgarian economy this year is the lack of
working force.

8. Labor
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 The shortage of the labor force in the country is due to the fact that
salaries are low and many Bulgarians emigrated to work abroad.
 The fall in labor resources of approximately from 40 to 50,000 each year
unquestionably limits the growth of the economy.
 Any measures to be taken for a change in education that will have effect
after 5-10 years will be useless if we do not solve the problem of labor
immigration.
 The solution of labor immigration problem is the challenge to catch up
with the standard of living and income growth.

9. Inflation
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 In addition to other challenges, Bulgaria is also faced with inflation due to
the oil price movement and expectations for an increase in fuel, natural
gas, electricity and heating prices.
 In recent months inflation has reached a record high for the past five years
and has exceeded 3.5%.
 Inflation melts a big part of people’s income and savings, making business
planning more difficult.
 For retirees, a significant part of the pensions given last year was
“swallowed” by inflation.

10. Bulgaria & Eurozone
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 An important step that the country should do this year is joining the Eurozone “waiting room”.
Because of this, the European Central Bank and the European control mechanisms will become more
and more influential in Bulgaria.
 According to the optimist prognosis if Bulgaria receives an invitation to join the ERM2 mechanism this
summer as a first step towards the full accession, the Bulgarian economy will become more stable. It
would also stimulate the Bulgarian banks which registered nearly EUR 1 billion profits in 2018 and are
now waiting to finance wise and reasonable projects.
 Accepting Bulgaria in the Eurozone-ERM2 mechanism will send a very strong positive signal to
investors that will affect Bulgarian credit rating. This could lead to lower interest rates for business as
well as for people.
 However, the expectations of both business and economists are rather pessimistic that Bulgarian
entry into the euro area will not take just two years as it normally is in the “waiting room”, and much
more because the standard of living of Bulgarians has to come close to the European one, and this
will not happen soon.