OECD forecasts 2.6% GDP growth for Bulgaria for 2025

Bulgaria’s GDP is expected to increase by 2.6 per cent in 2025 and 2.3 per cent in 2026, driven by household consumption growth, supported by ongoing high income and credit growth, and higher government investment with the rollout of EU funds, the Organisation for Economic Cooperation and Development (OECD) said in its Economic Outlook, released on June 3.

Bulgaria’s exports will grow slowly reflecting weaker growth in other EU economies, the OECD said.

It said that headline inflation has been rising and wage pressures remain elevated.

Sustained wage growth risks hindering the moderation of inflation, the report said.

“Interest rates have followed those in the euro area, under the currency board, but transmission to the Bulgarian economy is slow and incomplete, contributing to a household credit boom,” the report said..

Further macroprudential measures should be deployed, the OECD said.

It said that Bulgaria has requested an assessment of its readiness to join the euro area, which is assumed to occur in January 2026.

The fiscal deficit is set to remain consistent with the three per cent of GDP threshold.

“A more business-friendly administrative environment would help to boost investment, while more effective activation policies and measures to tackle informality would help to make better use of Bulgaria’s labour force,” the OECD said.

GDP increased by 2.8 per cent in 2024 with strong household consumption driven by wage increases, credit growth and higher government transfers, the report said.

It said that both public and private investment have been weak due to political uncertainty and low absorption and delay of EU funds.

Industrial activity fell below its pre-pandemic levels in the first three months of 2025, reflecting continued declines in mining and energy production.

Manufacturing output continued its downward trend, though it remained slightly above pre-pandemic levels. Services and construction activity also remained above pre-pandemic levels.

Overall, in the first quarter of 2025, GDP increased by 0.6 per cent (non-annualised). Annual headline inflation increased to 3.5 per cent in April 2025 from 2.4 per cent in April 2024.

Unemployment has been declining in tandem with the pick-up ineconomic activity, the report said.

Export growth has been held back by weak demand in key EU markets, particularly Germany.

Imports recovered more than expected in 2024, supported by domestic consumption, and outpaced exports, weighing on the current account balance.

“Recent changes in global trade policies and higher US tariffs on imports of goods from the EU will have a modest impact on trade, GDP growth and inflation, largely through spillover effects from weaker EU demand as direct trade linkages with the United States are weak,” the OECD said.

The report said that interest rates will stay low, while the budget deficit will remain at three per cent of GDP. Interest rate developments will continue to broadly follow euro area monetary policy given the currency board regime.

“However, transmission of monetary policy to domestic deposit and lending rates has been slow and incomplete due to high liquidity and stiff competition in the banking sector, leading to lending rates that are below euro area norms and strong domestic credit growth,” the OECD said.

Inflation is set to increase to 3.8 per cent in 2025, following strong readings at the beginning of 2025 due to higher food prices, excise and VAT rates as well as household utility prices.

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