The Organisation for Economic Co-operation and Development (OECD) has revised Bulgaria’s economic growth forecasts in its latest World Economic Outlook report, signaling a 1.7% growth rate for 2023, slowing due to external factors, with a projected acceleration to 2.8% in 2024.
Initially anticipating a 1.9% GDP growth for 2023 and 3.2% for 2024, the OECD’s updated forecasts reflect the nation’s weaker-than-expected external environment this year.
Bulgaria’s economic landscape witnessed a surge in household credit fueled by low interest rates, fostering private consumption. However, the OECD reports a deceleration in this consumption trend while projecting a positive impact on investments due to the EU disbursements.
The report highlights Bulgaria’s inflation at 9.5% in 2023, expected to ease to 4.5% in 2024, primarily attributed to declining energy prices. However, looming risks in persistent inflation are associated with proposed minimum wage hikes and fluctuations in global energy prices.
Persistent labor shortages create upward pressure on wages and demand, potentially hindering inflation mitigation efforts, as outlined in the OECD’s findings.
The OECD emphasizes the necessity for structural reforms, especially considering Bulgaria’s shrinking workforce and the imperative to retain its youth within the nation. While acknowledging existing climate policies, the report emphasizes the urgency of a comprehensive green transition strategy.
Bulgaria’s recent economic data for the third quarter of 2023 reflects a 1.7% GDP growth, supported by real interest rates and a robust labor market that fueled consumption and investments. Despite a decline in annual inflation from its peak in September 2022, Bulgaria faces challenges from rising core inflation and a tight labor market.
The OECD projects constraints in Bulgaria’s exports due to weak demand in the Eurozone, particularly impacting industries and tourism. However, it foresees a gradual recovery in these sectors in tandem with Europe’s economic growth acceleration.
In assessing Bulgaria’s trade outlook, the OECD acknowledges the nation’s dependence on European energy markets, indicating that energy price fluctuations might induce domestic inflationary pressures.
While Bulgaria’s fiscal support concerning energy price shocks is anticipated to diminish by 2023, the government faces challenges in offsetting planned increased spending without matched revenue gains. The OECD highlights the need for fiscal consolidation to counter demographic and fiscal pressures, necessitating policies to enhance productivity and address the challenges of an aging population.
The OECD‘s analysis stresses the importance of aligning monetary policy with the currency board regime and emphasizes the imperative for a comprehensive government strategy to drive sustainable development in the electricity sector.