BNB raises expectations for the Bulgarian economy

The Bulgarian National Bank (BNB) has raised its expectations for the growth of the Bulgarian economy in the current year. The main reason for the adjustment is the incoming data on the strong economic activity in the country.

According to the institution's latest estimates, Bulgaria's GDP will grow in real terms by 2.8% in 2025, by 2.2% in 2026, and by 3.1% in 2027.

For comparison, previous forecasts were for growth of 2.5, 3 and 2.5%, respectively.

The main factors for the revision in the GDP forecast and its main components are related to the additional reporting data received on economic activity in the fourth quarter of 2024 and the first quarter of 2025, as well as changes in technical assumptions about the external environment," the BNB said in its quarterly publication "Macroeconomic Forecast".

The central bank explained that a stronger increase in government consumption is expected this year, expressed in the higher spending on wages, healthcare, and intermediate consumption set out in Budget 2025.

The contribution of inventories will also be positive (versus the previously assumed neutral contribution), supported by the ongoing trend of companies accumulating inventories, operating in an environment of increased uncertainty and heightened geopolitical tensions.

Energy and services accelerate inflation

According to the BNB, inflation in 2025 will be 3.5%, next year it will be 2.5%, and in 2027, 2.6 percent. For comparison, the previous estimates from January 2025 were for levels of 3.5%, 2.1%, and 2.4%, respectively.

Although the estimates for the overall inflation for the current year stayed unchanged from the previous BNB bulletin, the average annual price increase has been revised up by 0.5 percentage points, to 3.8% for 2025.

The revision is due to significant upward revisions in energy products (by 4.2 pp towards a smaller price decline) and in the services group (by 1.6 pp towards a stronger price increase)," the report states.

The impact of US import tariffs

In its current bulletin, the BNB pays special attention to the impact of higher US import tariffs on Bulgarian exports. As Economic.bg wrote, the expectations are that the higher levies will not deal a serious blow to the Bulgarian economy.

A survey among businesses confirmed that for a significant portion of domestic companies, tariffs are not a cause for concern and they’ll have no effect on their activities.

The BNB also points out that the US share in Bulgaria's exports is relatively small, with statistics on gross foreign trade in 2024 indicating that 2.5% of Bulgarian exports of goods in nominal terms, or EUR 1.1 billion, are destined for the US.

The exposure of Bulgarian exports to the US is relatively limited, which is why the direct effects on economic activity in our country through the trade channel are expected to be relatively weak," the economists write.

However, they warn that the deepening of the trade war creates serious uncertainty and is a prerequisite for significant indirect negative effects on the demand for Bulgarian goods from the country's main trading partners.

However, these effects cannot be assessed at present due to ongoing changes in the foreign trade policies of leading economies.

Although difficult to predict, these effects have the potential to be significant and represent a major risk of lower growth in Bulgarian exports over the entire forecast horizon compared to the baseline scenario," the BNB says.

Translated by Tzvetozar Vincent Iolov