- institutional forecasts predict that inflation will stabilize and GDP will grow by 1.9% - 3.0% in 2024
- The lack of a functioning elected government poses a risk of further delay to the country's entry into the Eurozone.
The upcoming sixth parliamentary election in three years is bad news for Bulgaria's economy. During a political crisis, the state comes to a standstill -no reforms are made, EU funds don't flow in, and the pursuit of major national goals is put on a backburner.
Against this backdrop, the country registered economic growth of 1.7% year-on-year in the first quarter of 2024, with growth of 2% or more predicted for the full year. This is well above the EU and Eurozone average but still not enough for Bulgaria to quickly catch up with the average EU income and welfare levels. The lack of stable governance also brings a risk of indefinite postponement of the goal of adopting the euro.
What drives the economy
The main driver of the Bulgarian economy in recent years has been consumption - backed by rising incomes, low interest rates, and high inflation. Data for the first three months of this year shows that consumption continues to propel the economy forward (a 4.1% increase year-on-year).On 15 May the European Commission published its spring macroeconomic forecast, projecting Bulgaria's GDP growth at 1.9% in 2024. Economists note that although private consumption growth will slow, domestic demand is expected to remain the main driver of growth. The European Commission's forecast is one of the most pessimistic to date. Most other institutions monitoring Bulgaria predict that the country's GDP will grow between 2% and 3% this year.
Exports also have had a negative contribution to growth - for the first three months of the year, goods sales abroad decreased by more than 11.1% compared to the same period in 2023. The reasons are lower international prices, reduced quantities of fuel and electricity exports, and the economic stagnation in Europe. However, expectations are that this trend will start to reverse gradually by the end of the year, along with expectations for the recovery of Germany, the recent engine of the European economy.
Euro adoption date uncertain
The ongoing war in Ukraine and the conflict in the Middle East, continue to pose risks to economic development. Geopolitical tensions in a broader context also continue to generate risks, according to the European Commission's May 2024 Economic Forecast. The political crisis in which Bulgaria is mired is an additional risk for the country. Elevated political uncertainty freezes any thought of reforms, likely along with some investment projects. The lack of a functioning elected government also poses a risk of further delaying the country's entry into the Eurozone, with some analysts predicting it may be postponed until 2026.Data from the National Statistical Institute (NSI) as of April shows that the country will not meet the inflation criterion for euro adption by mid-2024, when the regular convergence reports of the ECB and the European Commission assessing the readiness of countries to join the Eurozone, will be presented.
Measured through the Еuropean harmonized index of consumer prices (HICP), Bulgaria's annual inflation reached 2.5% year-on-year in April, or just 0.1% above the Eurozone average. However, the price stability criterion for euro adption requires that the average annual inflation observed over one year before the assessment does not exceed by more than 1.5 percentage points the inflation of the three EU member states with the best price stability. The ECB calculates this by using the change in the latest available 12-month average for HICP compared to the previous 12-month average. This indicator for Bulgaria fell to 5.6% as of April, but the gap between the three countries with the lowest inflation is still over 2 points. Bulgaria may request an additional assessment later in the year. Therefore, according to Bulgarian National Bank (BNB) Governor Dimitar Radev, "our chances of joining the Eurozone in 2025 remain strong and realistic." But this is contingent upon the country having "a sustainable, pro-European political structure."
After his words, caretaker Finance Minister Ludmila Petkova met with Economy Commissioner Paolo Gentiloni and Eurogroup President Paschal Donohoe on the topic of Bulgaria's accession to the Eurozone. "Both welcomed the consistent efforts of the interim government, emphasizing the importance of political stability for the successful completion of the accession process," the finance ministry said. In short, this is a reminder that it is unlikely that any of the European institutions are in a hurry to accept a country without an elected government into the Eurozone.
The delay in Bulgaria's full integration into the core of the EU, which is the Eurozone, has its price, and according to Radev, this price is constantly increasing. In broader terms, it means "continued marginalization in the economic and political periphery of Europe with the inherent themes of this periphery such as poverty, corruption, and external dependencies". In more specific terms, the delay translates into worse conditions for business and investment, less favorable financing conditions, and less productive business expenses. "The scale of the losses is measured not in millions, but in billions," Radev stressed.
- institutional forecasts predict that inflation will stabilize and GDP will grow by 1.9% - 3.0% in 2024
- The lack of a functioning elected government poses a risk of further delay to the country's entry into the Eurozone.
The upcoming sixth parliamentary election in three years is bad news for Bulgaria's economy. During a political crisis, the state comes to a standstill -no reforms are made, EU funds don't flow in, and the pursuit of major national goals is put on a backburner.
