BNB lowers expectations for Bulgarian economy
In its latest report, the central bank is betting on a slower rise in interest rates and more lending than expected in November
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~ 2 min read
Antoniya Simova The Bulgarian National Bank (BNB) has lowered its growth expectations for the Bulgarian economy in 2024 and next year. The central bank now expects gross domestic product (GDP) to grow by 2.5 per cent this year and 3.4 per cent in 2025, down 0.2 percentage points in each of the two years.
Growth this year is expected to be driven by exports and domestic consumption. Both this year and next, public investment financed under the Recovery and Sustainability Plan and European programmes of the new programming period is expected to grow strongly. The main risk to the BNB's forecast is the slower implementation of the EERP investment projects and the slower absorption of EU funds.
The BNB also lowers its expectations for...
...containment of the credit boom and interest rate growth
The Bulgarian central bank still expects interest rates to rise and credit growth to slow in Bulgaria, but it now expects this to happen at a slower pace. This is due to high liquidity in the system and strong competition among banks in Bulgaria. The BNB now expects household credit to grow by 10% this year and 8.5% next year. By comparison, the BNB's November forecast was for 8.9 per cent growth this year and 7.7 per cent in 2025.
The central bank expects interest rate hikes in Bulgaria to continue at a relatively slow pace, peaking in early 2025.
Thus, the stronger-than-expected credit activity in November and the weaker pass-through of the interest rate hike in Bulgaria are also a factor for higher private consumption growth compared to the BNB's previous forecast.
Wages and inflation
The central bank also expects that the worsening labour shortage will continue to put upward pressure on wages, outpacing productivity and inflation. Consumption is therefore expected to remain high, which has a pro-inflationary effect.
Higher labour costs, in turn, could reduce the price competitiveness of Bulgarian companies in the long run.
The BNB maintains its inflation forecast for Bulgaria at 3.1% for 2024 and 2025.
This article was translated with the support of DeepL.
