Bulgaria's Consumption Stabilises As Economy Slows

Fitch Solutions / Economics / Bulgaria / Tue 21 Aug, 2018

Key View: Bulgaria has posted impressive growth rates during the past few years but recent forecasts suggest that the economy may be entering a slowdown period. Unemployment rates are at an all-time low and inflation rates are up, sparking risks of overheating. This high rate of economic activity combined with a labour shortage is dramatically pushing up wages, boosting consumer confidence across the country.

The Bulgarian economy has been growing at a stunning pace in recent years. Strong export growth, a well-educated workforce and a business-friendly environment is driving economic growth in the country. We expect the Bulgarian economy to continue on its strong growth trajectory of the last five years (2013-2017), where it has averaged roughly 2.7% each year. However, it was in the last three years that growth has really accelerated, averaging 3.7% per year (2015-2017). We expect 2018 and 2019 to be similar, with growth forecast at 3.5% and 3.3%, respectively.

We do believe that these economic growth rates are unsustainable and that the economy may be at risk of overheating. The inflation rate has been steadily increasing since 2016, where it went from -1.3% y-o-y, to an estimated 2.2% for 2018. Unemployment is also reaching record lows, estimated to be 6.4% of the labour force, by the end of 2018. While we do not expect a drastic slowdown in economic activity, weakening external demand amid slowing growth among the country's primary Eurozone trading partners, will force growth rates down. Over our medium term period (2018-2022), we are forecasting an average annual growth rate of 3%, but with each year's growth rate slower than the year before.

Domestic...