EC: Higher taxes will weigh on Bulgarian GDP growth in 2025

 increased indirect taxes, higher prices for electricity, utilities and food, and hikes in international tariffs are set to weigh on the economic outlook for Bulgaria, according to the European Commission's EC) spring macroeconomic forecast, published on Monday.

We would like to remind you that on January 1, 2025, VAT for the tourism and restaurant industry was restored to 20%, while excise duties on cigarettes were raised once by nearly 6% on the same date and a second time by about 4% on May 1. The social security burden was also increased with the raising of the minimum and maximum social security thresholds.

The EC's calculations predict economic growth in Bulgaria of 2% in 2025 and 2.1% in 2026. By comparison, the autumn forecasts were for growth of 2.9% and 3% respectively. In 2024, the Bulgarian economy grew by 2.8%.

The EC attributes the significant downward revision to both external and internal factors, such as the expected lower contribution of private consumption, which has been the main driver of the Bulgarian economy in recent years.

Private consumption is set to grow more moderately than in 2024, constrained by temporarily higher inflation and precautionary savings," the EC explains in its report.

We would like to remind you that the Bulgarian National Bank (BNB) forecasts 2.8% growth in 2025 and 2.2% in 2026, while the Ministry of Finance forecasts 2.8% and 3% respectively.

Inflation will slow down after the euro

A positive point in the report is the inflation forecast, which stood at 2.6% in 2024. For 2025, the EC reports that it will rise by 1 percentage point to 3.6%, but then, in 2026, when Bulgaria is expected to join the eurozone, it will slow significantly to 1.8%.

The higher inflation in domestic food prices at the beginning of 2025 is expected to decelerate gradually, following broadly the international developments," the EC's economists say.

The pass-through of lower futures’ prices into retail energy and non-energy industrial goods prices is also projected to keep inflation down. 

Separately, unemployment in the country will continue to decline. In 2024, it stood at 4.2%, in 2025 it is expected to fall to 4%, and next year to 3.8%.

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," the report says.

Private sector wages will continue to rise moderately, while public sector wages will increase strongly in 2025 against a backdrop of stable employment.

This text was translated by DeepL Translator.