Bulgaria projection note OECD Economic Outlook November 2023

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Bulgaria GDP growth is projected to slow to 1.7% in 2023 before recovering to 2.8% in 2024 and 3.0% in 2025. Low interest rates fuelled a household credit boom, boosting private consumption, but this is easing. The catch-up in the disbursement of EU funds is expected to contribute positively to investment in 2024 and beyond. Inflation is high in 2023 but is expected to moderate during 2024. The large, planned minimum wage increases in 2024 create risks of more persistent inflation, while changes in global energy prices could impact exports and inflation. Interest rates are expected to continue to broadly follow euro area monetary policy given the fixed exchange rate regime of the Bulgarian lev to the euro. The fiscal deficit is likely to widen if spending increases are not fully offset by higher tax collection. Fiscal consolidation would help to manage demand in the economy and prepare for longer-run challenges. Structural reforms are needed given the shrinking labour force and the need to encourage young people to stay in Bulgaria. While some climate policies and targets are in place, the development of a comprehensive green transition roadmap is a priority. Domestic demand has been strong GDP expanded by 1.7% in the year to the third quarter of 2023, with negative real interest rates and robust labour markets supporting strong private consumption and investment. However, government consumption was weak due to the lack of an agreed budget during the first half of the year. The annual inflation rate has fallen rapidly from a peak of 18.7% in September 2022 to 5.8% in October 2023. Core inflation has been more persistent, fuelled by second-round effects from high food and energy prices and rising labour costs. Unemployment is low but rising, although the labour market is set to remain tight given demographic headwinds.

Bulgaria

1. Nominal average gross monthly wages for all sectors of employees under a labour contract in lev. 2. The shortage of labour measure refers to the share of firm respondents to a business survey conducted by the National Statistics Institute that identified shortage of labour as a factor limiting the activity of their enterprise. It is the arithmetic mean of the same survey conducted in four sectors: industry, construction, retail trade and services. Source: National Statistics Institute. StatLink https://stat.link/8vh6rt OECD ECONOMIC OUTLOOK, VOLUME 2023 ISSUE 2: PRELIMINARY VERSION © OECD 2023


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