Bulgaria Economic Forecast

After slowing in the final quarter of 2022, GDP growth likely lost further steam in Q1 2023. In January–February, industrial output weakened notably from Q4’s average due to collapsed activity in the mining sector, and a slump in manufacturing in the latter month. In addition, retail sales continued to shrink on an annual basis in the same period, albeit at a slower pace compared to the prior quarter. More positively, consumer sentiment improved through March, supported by weaker price pressures and a lower unemployment rate throughout the quarter. In politics, negotiations to form a coalition government between the leading political parties were stalemated in early May. The deepening political crisis makes a sixth election round in two years increasingly likely. Meanwhile, on 28 April, the Council of Ministers drafted the 2023 budget, envisioning a deficit of 6.4% (2022: -2.8%).

In March, inflation waned further to 14.0% (February: 16.0%) on falling prices for transport and softer price pressures for food and housing and utilities. This year, inflation should cool sharply on lower commodity prices, weaker domestic demand and a high base effect. Renewed energy uncertainty and stronger-than-expected economic activity pose upside risks.