Country Forecast Bulgaria March 2018 Updater

Country Forecast Bulgaria March 2018 Updater

  • March 2018 •
  • Report ID: 5370246 •
  • Format: PDF


  • The formation of a new centre-right ruling coalition in May has ushered in a period of greater calm. The new government is led, once again, by Citizens for European Development of Bulgaria (CEDB), and it also includes United Patriots (UP), comprising the nationalist Patriotic Front (PF) and the ultra-nationalist Ataka (Attack) party.
  • The Economist Intelligence Unit expects that the government's focus on the tasks associated with Bulgaria's presidency of the Council of the European Union in the first half of 2018 will result in a stable government over this period. However, tensions between the CEDB and the nationalists are likely to emerge afterwards, and we do not expect the government to serve out its four-year term.
  • We expect the new government to continue its predecessor's policies of fiscal prudence and infrastructure development. After a budget surplus of 0.9% of GDP in 2017 due to faster than expected domestic revenue growth and lower than planned spending, in 2018-19 we expect an average deficit of 0.4% before the budget balance moves back into surplus in 2021-22.
  • The nationalists in the government's ranks will seek to boost state control over the economy. The authorities will not jeopardise the policy anchor provided by the currency board. Bulgaria is committed to adopting the euro, and we expect the new government to seek support across the euro zone in the near future for starting the process of entry to the EU's exchange-rate mechanism (ERM II).
  • We forecast that real GDP growth will edge down, from 3.6% in 2017 to an average of 3.3% per year in 2018-19, before slowing to an average of 2.8% in 2020-22. A declining population will hinder growth. Downside risks include uncertainty in the medium term about Greece's continued euro zone membership.
  • After three successive years of deflation, average inflation returned in 2017, at 2.1%. We forecast that inflation will average 3% per year in 2018-22 as wage costs rise in a tight labour market.
  • We forecast that the current-account surplus, equivalent to an estimated 3.9% of GDP in 2017, will decline to an average of 1.9% per year in 2018-21, before swinging back into a small deficit in 2022.






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