Analyzing the latest data from the National Statistical Institute and Eurostat, UBB comments on key trends in Bulgaria's economy.  The bank's analysts report that in the fourth quarter of 2023 (according to the latest available data), the gross domestic product (GDP) grew by 1.6% in real terms, slower - as expected - than in the previous quarters, and for the whole year there was a growth of 1.8 % - among the relatively high ones in the EU.

“On the manufacturing side, during that quarter, the economic activity was driven mainly by services.  Not only did they grow the fastest by 1.0 % (in real terms, compared to the same quarter of 2022), but due to their huge relative share of GDP – 61.9 %, they solidly supported the growth of the economy as a whole. Against this background, industry recorded a comparable increase of 0.9 %, but its impact was far weaker, as it accounted for an almost three times lower relative share of GDP – 18.8 %.  The smallest industry within GDP, that of construction, with a share of 2.7 %, also increased its output by 0.7 %, while agriculture shrank by -3.9 % with a share of 4.5 % within GDP”, Mr. Emil Kalchev, UBB’s Chief Economist, commented.

The weaker result in the fourth quarter was due to the slowdown in growth in the euro area, a consequence of ECB's restrictive monetary policy. In addition, Bulgaria's largest trading partner, Germany, fell into a technical recession, which had its impact – for a slight slowdown in the economic activity in Bulgaria.

"The outlook for the economy in 2024 will continue to depend on trends in the euro area as well as on national factors.  The most likely scenario for the euro area is a slight slowdown in growth – to 0.4 % (0.5 % for 2023) with an inflation of 2.4 %. In this context, Bulgaria's economic position seems to be better.  Our expectations are that the growth will be slightly higher than last year and will reach 2.3 %, with an average inflation falling to 4.2 %.”, Mr. Kalchev forecasts.

Unemployment statistics, as expected, showed a sustainable level of 4.4 % in January 2024 (4.3 % at the end of 2023). "We do not anticipate major changes in unemployment for the whole year – our forecast is for 4.2 % at the end of December. In general, the situation on the labor market in Bulgaria has remained unchanged. It is characterized by a limited supply of qualified workforce and a relatively high demand, which has resulted in a relatively high growth of the average salary in Bulgaria – higher than inflation.", Dr. Kalchev explained.

Price growth continued to slow down in February 2024 as well. Thus, harmonized inflation decreased to 3.5 % (compared to February last year). In turn, core inflation (excluding food and fuel) followed the same trend, reaching 4.1 %. The so-called consumer inflation (according to the national methodology) was slightly lower than the harmonized one, falling to 3.3 % in February. "The fastest rising prices in February were again those of restaurants and hotels, health care and education.”, Emil Kalchev concluded.