World Bank slightly raises growth forecast for Bulgaria for 2022

The World Bank has slightly raised its growth forecast for Bulgaria for 2022, to 2.9 per cent in its autumn economic prospects report, up by 0.3 percentage points compared with the World Bank’s forecast in June.

However, it has lowered its forecast for Bulgarian economic growth in 2023, to 1.7 per cent, down by 2.6 points compared with the June forecast.

In its Europe and Central Asia Economic Update for autumn 2022, the World Bank said that following robust growth in the first half of 2022, the Bulgarian economy is set to slow down in line with global and regional trends.

“The spike of inflation on energy and food prices is already outpacing wage growth and may increase poverty,” the World Bank said.

The fiscal position remains strong but is likely to worsen in the remainder of 2022, as new anti-inflationary measures take effect. Political instability may weaken the reform agenda and reduce the country’s ability to fully absorb EU funds.

Bulgaria’s growth projection for 2022 has increased to 2.9 percent on better-than-expected performance in the year to date, the World Bank said.

Growth deceleration is forecasted to start in H2 of 2022 and continue in 2023, in line with global and EU trends.

“Going forward, reforms and investment under the National Recovery and Resilience Plan and the EU Multiannual Financial Framework will help sustain growth.”

Yet, risks remain titled to the downside and further downward revisions are likely in case of prolonged supply and price shocks in international markets, the World Bank said.

Inflation is projected to remain elevated and end 2022 in double digits, with a gradual reduction in 2023.

The fiscal deficit is likely to expand to 4.2 percent of GDP due to the expected slowdown of the economy and recently approved anti-inflationary measures.

The current account deficit is also expected to widen in 2022, to 2.7 per cent of GDP, as import prices soar.

Amidst better-than-expected growth for 2022, poverty as measured by the US$6.85 2017PPP poverty line is projected to decline from 7.1 percent in 2021 to 6.8 percent in 2022.

“Despite that, the potential for downside risks remains high, particularly in the context of the war in Ukraine,” the World Bank said.

“Rising food and energy prices continue to put pressure on poorer Bulgarians who spend a disproportionately high share of their income on these items. Social assistance and wages not keeping pace with inflation will further undermine the purchasing power of households.”

Poverty is projected to remain relatively unchanged at 6.7 percent in 2023, though downside risks are likely to persist.

Separately, Bulgaria’s outlook is marred by the latest bout of political instability that started with a no-confidence vote against the government in June.

The World Bank said that the outcome of the early elections on October 2 would reveal whether the country will attain some degree of political stability (the report was compiled before the outcome of the elections was known).

“If not, the political crisis will linger as it did in 2021, which may well negatively impact the pace of absorption of EU funds and structural reforms, slowing Bulgaria’s convergence towards average EU incomes,” the World Bank said.

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