RECENT ECONOMIC DEVELOPMENTS
Stronger domestic demand contributed to an acceleration of GDP growth to 3.9 and 4.2% y-o-y- in the first and second quarters of 2017, respectively, from 3.4% in 2016. Private consumption continued to improve on the basis of rising incomes, employment, and credit growth. Unemployment declined to an eight-year low (5.9% of the labor force in July 2017). Exports expanded at a robust rate, supported by strong demand from the EU, but imports grew faster.
Improvements in labor market conditions and income growth supported further poverty reduction. Poverty measured using the uppermiddle-income class line of US$5.5 per day (in 2011 purchasing power parity [PPP] terms) is estimated to have declined from 8.5% in 2015 to 7.9% in 2016. However, income inequality in Bulgaria is one of the highest in the EU, as the income of the richest 20% of the population was almost eight times that of the poorest 20% in 2015.
Unemployment has declined significantly, but regional variations and long-term and youth unemployment remain high. Inactivity among certain groups of the population persists, 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 continued to be in surplus in the first half of 2017 despite a slight decline in revenues. Tax and social contribution revenues grew by close to 8% y-o-y on account of the improved economic activity and rise in the pension contribution rate. Non-tax revenues, however, were lower than in 2016 due to lower grants from the EU.
The external current account surplus narrowed somewhat in the first half of 2017 compared to a year ago as the trade deficit expanded.
Prospects for 2017 are better than initially expected, with GDP projected to grow at 3.8%. Household consumption is likely to continue expanding on the back of further improvements in labor market and credit conditions. Investment is likely to remain strong in the second half of the year. Going forward, GDP is projected to pick up to 4% in 2019.
Poverty reduction is expected to continue at a modest pace in the near term. Continued improvements in employment and wages, as well as scheduled increases in pensions and minimum wages, should support real incomes and therefore further reductions in poverty among the elderly and working poor. Consequently, poverty at US$5.5 in 2011 PPP is projected to fall to 7.6% in 2017, 7.1% in 2018, and 6.7% in 2019.
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 and higher commodity prices. Import growth is expected to be driven by higher oil prices and strengthening domestic demand for consumer and investment goods.
The fiscal position is likely to weaken slightly in 2017 compared to 2016 but to 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 [ESA] 2010 methodology), as expenditure growth is likely to accelerate by the end of the year due to pension increases in effect since July and the faster pace of implementation of EU-funded capital projects.
Last Updated: Oct 06, 2017