Real GDP growth is forecast to slow down to 2% in 2025 and 2.1% in 2026, due to both external and domestic factors. Private consumption is set to grow more moderately on account of temporarily higher inflation and precautionary savings. The outlook for exports has also been revised downwards, reflecting subdued external demand and increased competition on external markets. Private investment is projected to contract, while public investments would be supported by intensified EU funds absorption. Wage growth is expected to moderate and annual inflation to fall gradually after the increase at the beginning of 2025. The general government deficit for 2025 is projected to decrease to 2.8% and to remain constant in 2026. The debt-to-GDP ratio is set to increase to 25.1% and 27.1% in 2025 and 2026 respectively.
| Indicators | 2024 | 2025 | 2026 |
|---|---|---|---|
| GDP growth (%, yoy) | 2,8 | 2,0 | 2,1 |
| Inflation (%, yoy) | 2,6 | 3,6 | 1,8 |
| Unemployment (%) | 4,2 | 4,0 | 3,8 |
| General government balance (% of GDP) | -3,0 | -2,8 | -2,8 |
| Gross public debt (% of GDP) | 24,1 | 25,1 | 27,1 |
| Current account balance (% of GDP) | -0,8 | -1,1 | -1,0 |
Lower GDP growth due to external and domestic factors
Economic growth accelerated to 2.8% in 2024, driven by private consumption, which was underpinned by higher real wages, employment gains and increased social transfers. Exports of goods and services contracted, weighed down by the Russian war of aggression, with combined nominal goods exports to Ukraine and the Russian Federation contracting by around one third compared to the previous year. Lower demand for Bulgarian goods from China and the UK also contributed to the decline in nominal exports. Investment declined by 1.1% due to lower public spending, while firms accumulated more inventories.
For 2025, increased indirect taxes, higher prices for electricity, utilities and food, and hikes in international tariffs are set to weigh on the economic outlook. Private consumption is set to grow more moderately than in 2024, constrained by temporarily higher inflation and precautionary savings. The outlook for exports has also been revised downwards but is expected to still turn positive in 2025, due to positive growth in the first quarter, and to accelerate moderately in 2026. Exports of goods in 2025 are also affected by planned maintenance works in the steel production and oil refining sectors. Private investment is projected to contract in 2025 and 2026 due to the heightened economic uncertainty. The projected acceleration in the absorption of EU funds is expected to support a moderate investment growth that accelerates in 2026. Overall, real GDP is forecast to grow by 2% in 2025 and by 2.1% in 2026.
Moderation in wage growth while unemployment remains low
In 2024 the labour market remained tight, with an unemployment rate at around 4%. Nominal growth in compensation per employee slowed from 13.8% in 2024-Q1 to 4% in 2024-Q4, as inflation pressures subsided, and firms aimed to curb costs. Wage moderation in the private sector is expected to continue, accompanied by limited job losses related to the worsened economic environment and the need to preserve competitiveness. Public wages are projected to grow strongly in 2025, amid solid hiring.
Disinflation after the price increases at the beginning of 2025
HICP inflation slowed to 2.6% in 2024. The price hikes at the beginning of 2025 were due to restored higher VAT rates on bread and restaurants, higher excise duties on tobacco, increased electricity, gas, other utilities and administered prices and higher food prices. Inflation developments for the rest of 2025 and in 2026 are also set to be driven by both external and domestic factors. The higher inflation in domestic food prices at the beginning of 2025 is expected to decelerate gradually, following broadly the international developments. The pass-through of lower futures’ prices into retail energy and non-energy industrial goods prices is projected to keep inflation down. The disinflation in the services sector is set to benefit from wage moderation and the need to preserve competitiveness for exported services in a worsened external environment. Overall, HICP inflation is projected at 3.6% in 2025 and 1.8% in 2026.
General government deficit remains within 3%
The general government deficit rose to 3% of GDP in 2024. In line with policy changes legislated in 2022, permanent increases in pensions and wages, compounded by higher social benefits, continued to impact expenditure. The one-off statistical recording of settled liabilities for road infrastructure works from 2020-21 contributed 0.5% of GDP to the increase.
For 2025, the deficit is expected to decrease to 2.8%. Further increases in social spending and public sector salaries are planned, particularly in sectors such as defence. Public investment is set to increase in 2025, in line with the efforts to advance the implementation of the RRP amid severe delays and also due to the expected deliveries of military equipment. The stimulus to economic activity from public investment is expected to have a positive impact on revenues. A positive contribution is also expected from measures such as increases in excise duties on tobacco products, the reinstatement of standard VAT rates for bread and restaurant services, a 100% dividend policy on state-owned enterprises and from measures to fight tax evasion and avoidance. In 2026, the deficit is expected to remain at 2.8% of GDP. Growth in expenditure on public sector salaries, pensions and social benefits is set to decelerate while revenues, including social contributions, are set to benefit from wage increases in the private sector.
The general government debt-to-GDP ratio is forecast to increase from 24.1% in 2024 to 25.1% in 2025 and further up to 27.1% by 2026, driven by a stable primary deficit above 2% and sustained disinflation. Risks to the fiscal outlook of Bulgaria are still tilted to the downside, as permanent increases in public sector wages and pensions are not fully compensated, and due to the potential impact of planned recapitalisations of state-owned enterprises.