The "Economist Intelligence Unit" has pushed back Bulgaria's anticipated entry into the Eurozone and full Schengen membership to 2026, citing ongoing political instability as a major factor. According to their August forecast, while adopting the euro could be technically feasible by 2025 if price stability and a stable government are achieved, the prevailing conditions suggest a delay. Persistent political instability and inflation levels exceeding those of the European Central Bank benchmark are expected to hinder this timeline.

The forecast highlights that Bulgaria's capital expenditure program will remain heavily reliant on European Union funding, particularly from the Recovery and Resilience Plan. Despite the potential for increased investment, which is currently below that of comparable regional economies, the country's substantial coal sector and the need for social protection programs for miners may impede progress toward a green transition. This transition is crucial for accessing funds from the Recovery Plan.

The business climate in Bulgaria is anticipated to gradually improve, though the country will likely remain less attractive compared to other Eastern European nations due to political instability and underdeveloped infrastructure. The report notes that Bulgaria has struggled with government instability since 2021, and the fragmented parliament continues to obstruct key policy implementation. Polls from July indicate a significant risk that the political instability will persist into the next year.

Regarding inflation, the forecast suggests a significant reduction from 9.5% in 2023 to 2.7% by the end of this year, approaching the Eurozone's 2.5%. This decrease is attributed to slower increases in energy and food prices, which make up a significant portion of the consumer price index. However, inflation is expected to remain above Eurozone levels due to continued pressures from the services sector, wage increases, and VAT changes. The forecast predicts that inflation will average 2.7% annually until 2028, compared to the European Central Bank's projected rates of 2.1% for 2025 and 1.9% for 2026.

Bulgaria's economy is expected to grow steadily, with rates increasing from 2.4% this year to between 2.7% and 2.9% by 2028. Domestic demand, driven by rising wages, will be the main growth driver, surpassing export growth. The country faces a chronic trade deficit, partially offset by a surplus in services such as tourism, which is anticipated to benefit from Schengen entry.

The impact of the war in Ukraine on Bulgaria's economy is projected to diminish this year. However, geopolitical risks remain due to Bulgaria's proximity to the conflict and its role as a significant producer of armaments for Ukraine. If Donald Trump wins the US presidential election, it is expected that he will pressure Kyiv and Moscow to negotiate a peace deal, although analysts anticipate that Europe may struggle to replace reduced American aid, potentially leading to a less favorable settlement for Ukraine.

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