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THE EUROPEAN COMMISSION HAS PUBLISHED ITS SPRING MACROECONOMIC FORECAST

12.05.2017

The European Commission has kept its projections for the growth of the Bulgarian economy unchanged as compared to its winter forecast from this year. GDP is expected to grow by 2.9% in 2017 and by 2.8% in 2018.

Domestic demand will be the main GDP growth engine over the forecast horizon, driven in particular by private consumption and investment following the acceleration in EU funds absorption under the 2014-2020 programming period. The Commission notes the good performance of exports in 2016, underpinned by stable demand from EU trading partners as well as a strong tourism season. As a result, the current account surplus reached 4.2% of GDP. The Commission expects the positive balance to gradually fall to 2.4% in the current year and to 1.8% in 2018, respectively. The main contributor will be higher imports, driven by the strong domestic demand and the rise in energy prices.

The Commission projects positive inflation in Bulgaria in 2017. Total HIPC in the country is expected to increase by 1.3% on average due to strong domestic demand, higher prices for utilities and recovering energy prices. The annual average inflation is projected to accelerate to 1.5% in 2018.

According to the forecast, labour market conditions will continue to improve. As compared to the winter forecast, employment growth is increased to 0.6% in 2017 and 2018, supported by the further recovery in domestic demand. The increase in employment, together with the stagnation in the labour force, is likely to reduce the unemployment rate to 6.4% in 2018. Compensation-per-person-employed growth is expected to accelerate to 4.9% in 2017 and to slightly slow down to 4.5% in 2018.

The Commission expects fiscal consolidation to continue at a faster-than-planned pace, outperforming the budget balance targets. The Commission estimates the consolidation in structural terms at 1.5 pps. of GDP in 2016, having actually a balanced budget. It forecasts a budget deficit of 0.4% of GDP (on accrual basis) in 2017. Under a no-policy-change assumption, Commission experts expect the deficit to drop to 0.3% of GDP in 2018.

The Commission estimates the general government debt to have reached 29.5% of GDP in 2016 due to a temporary increase in cash buffers, which will partly cover debt repayments in 2017. Having in mind also the continuous primary budget surplus, general government debt is forecast to decline to 26.8% of GDP in 2017 and to 26% of GDP in 2018.