RECENT ECONOMIC DEVELOPMENTS
Similar to 2015, GDP grew by 3.4% in 2016, a significant improvement compared to the 2009– 14 period. Exports, supported by strong demand from the EU, expanded at a robust rate and were the key driver of growth. Private consumption continued to improve on the basis of low inflation and favorable labor market conditions. Unemployment declined to a seven-year low (7.6% of the labor force in 2016), as new jobs were created in a number of sectors employing both high- and low-skilled labor.
On account of robust economic growth and an equally strong labor market performance, poverty continued to decline in 2016. Moderate poverty (US$5/day) and extreme poverty (US$2.5/day) are estimated to have declined from 14.7 and 5.0% in 2015 to 13.7 and 4.8%, respectively, by the end of 2016. However, income inequality is one of the highest in the EU and has been increasing, as the income of the richest 20% of the population was more than seven times that of the poorest 20% in 2015.
Though declining, unemployment is still high, especially long-term and youth, with high regional variation. Inactivity among certain groups of the population also remains high as a result of an education system with deteriorating quality and rising inequality, and a large number of people remain excluded from economic opportunities, such as the elderly, people living in rural areas, and the Roma. Fiscal accounts recorded a cash surplus of 1.6% of GDP in 2016 compared to a planned deficit of 2%. This was the first surplus since 2008 and was supported by sustained improvements in tax collection.
GDP growth is projected to slow to 3.0% in 2017, as the positive contribution of external trade diminishes with oil prices surging and uncertainty in the EU increasing. Household consumption is likely to be the key driver of growth as labor market and credit conditions improve further. Going forward, the economic recovery is projected to be modest, with growth picking up to 3.2% in 2018 and 3.3% in 2019. Poverty reduction is expected to continue at a modest pace in the near term. Moderate poverty is projected to fall to 13.0% in 2017 and 12.2% in 2018, whereas extreme poverty is projected to fall to 4.3% in 2017 and 4.1% in 2018.
The external current account is expected to continue to be in surplus though decline by 2019. Export growth is projected to be robust, in line with Bulgaria’s improved competitiveness on EU markets. Import growth is likely to be affected by higher oil prices and strengthening domestic demand for investment goods.
The fiscal position is likely to weaken slightly in 2017 but improve in the medium term. In 2017, fiscal accounts are set to be in a deficit of 0.6% of GDP (based on the European System of Accounts 2010 methodology) as implementation of EUfunded capital projects accelerates compared to 2016. Strong revenue collection, is likely to support fiscal consolidation in the medium term.
However, limited improvements in the spending efficiency of select sectors could undermine fiscal consolidation plans going forward and limit the potential of public spending to enhance growth.
Last Updated: Apr 20, 2017